This Week in Barrons: June 13th, 2021
3 Tough Entrepreneurial Challenges:
1. How do I balance short-term vs long-term goals? When it comes to predicting the weather, my phone app does a pretty good job in the very near term, but anything longer than 48 hours = not so much. Does anyone really know how to price things into the future? We’ve all heard the stories: In 1971, Carolyn Davidson designed / sold the Nike swish to Phil Knight (founder of Nike) for $35. In 1984, you could buy two game-worn Michael Jordan jerseys for less than one share of IBM. In 2010, Laszio Hanyecz used 10,000 Bitcoin to buy two Papa John pizzas. On the other side, remember those can’t lose investments like: Global Crossing, WorldCom, Lehman Brothers and Bear Sterns. 80% of entrepreneurs don’t think twice about trading sustainability / profitability for eye-balls. “I can always raise more money, and besides - money is free”… is their answer. I listen to people all day who ask: “What does trading have to do with investing? If you’re investing for 5 years, who cares what your buy-in price is?” I think: “How can any investment philosophy WORK – without reasonably accurate / liquid short-term trading successes? Otherwise, I’m guessing on the weather 5 years from now.” Betting on our FED and their positive drift theory is why people are yawning about 7 - 12% inflation. I favor short-term profitability / sustainability, and strictly depend upon others (including the FED) as a long-term ‘back-up plan.’
2. “Why does listening to feedback always turn into a bitch session?” Early entrepreneurs need to learn that: Feedback is a good thing and a Gift. It lets you know precisely what your users want or need. How you accept their feedback makes all the difference in the world to your company’s success. Dismissing feedback by arguing or appearing ungrateful, virtually assures your customer will soon be someone else’s customer. The art of customer retention makes both your customer satisfaction score and your profitability index increase. A correct response to all customer feedback is: “Thank You”. Dismissing the issue by saying: “No problem”, lets yourself off-the-hook and closes down what could have been a useful interaction. Finding a solution to a problem that you did not know existed – is better than denying its existence completely.
3. “What do I do with all this office-space?” Many companies are moving to a hybrid WFH model that invests in holo-tech to fight Zoom fatigue. Holograms aren’t just for employees, but also a bet on the future of remote communications. In the last few months:
- Google unveiled hologram Project Starline,
- WeWork partnered with a holo-tech company to bring holograms to 100 WeWork buildings around the globe. Starting in July, WeWork is charging companies $2,500 for use of the WeWork HoloPod facility.
- Microsoft unveiled Microsoft Mesh, a service that displays life-size 3D avatars and content through smart glasses.
Holograms offer WFH flexibility with an in-office (reduced travel) experience. They’re about a year away from adoption, and pants will definitely be required.
The Market:
- In Cryptoland (per WC):
o The accumulation process is nearly complete,
o Profit-taking is nearly reset on all time frames,
o The rate of which short-term holders have been selling has decreased, while the rate that long-term holders are buying has increased,
o Futures Open Interest is creeping back up,
o Miners selling, hash rate is trending down,
o We’re sitting on lower band of Stock-to-Flow, and
o A. large cluster of on chain volume is forming at these levels.
- The El Salvador Experiment:
o Businesses will accept Bitcoin as payment,
o Salvadorans will be able to pay taxes and bank loans in BTC, and
o Converting BTC to other currencies will NOT trigger capital gains tax.
El Salvador's President believes the move to crypto will improve financial inclusion among the 70% of Salvadorans who do NOT have access to traditional financial services. Having BTC as legal tender, will also ease the remittance fee burden.
o 25% of Salvadorans live abroad – mostly in the U.S.
o 30% of El Salvador's economy comes from money that family members living abroad send back home. In fact, home-bound remittances hit a record $6B last year. Sending this through banks triggers huge fees and takes precious time. BTC is cheaper, faster and easier to transfer.
The entire world will be watching this experiment – especially developing countries. Analysts are worried about the economic risks posed by BTC’s extreme volatility. El Salvador is one of Central America's poorest countries, and has struggled to manage its own finances for years. Converting to BTC rather than U.S. dollars could help cover its huge deficit – especially given crypto’s recent rise – and the U.S. dollar’s continued fall.
InfoBits:
- To celebrate the 90th Anniversary of the phrase: “The American Dream” … a survey asked the question: “How do you achieve the American Dream?” 40% (the highest response) said: “Hard work”, while 3% said: “Luck and Privilege.”
- The luck of the Irish may end... with the G7 adopting a 15% global min. corp. tax-rate. That office in Dublin may not be so important anymore.
- The FDA approved Biogen’s Alzheimer’s drug… and shares soared 38% on the news. The FDA will require another study to prove the drug is effective. If the 2ndstudy fails, does the stock give back its gains?
- Google agreed to change its global advertising practices… after France slapped it with an unprecedented $268m fine.
- The amount of carbon dioxide in the Earth's atmosphere… has reached its highest level in over 4 million years.
- Jerome Guillen, a critical executive at Tesla… who was working on the Tesla Semi, and led the automotive business – has left the company.
- At the latest Apple WWDC, we learned… Apple’s new mobile wallet will permit users to unlock their cars, homes, hotel rooms, and even store IDs. “At Apple, we believe privacy is a fundamental human right. There is never a tradeoff between great features and privacy. We believe you deserve both.”
- Ohio’s Attorney General has filed a lawsuit… to declare and regulate Google as a public utility. "Google uses its dominance of internet search to steer Ohioans to Google’s own products – that's discriminatory and anti-competitive."
- Electric truck startup Lordstown Motors… says it doesn’t have enough cash to start commercial production.
- JBS paid the ransom to cybercriminals… who last week knocked out plants that process roughly 20% of our nation’s meat supply.
- Facebook’s new smartwatch will feature… a display with two cameras, that can be detached from the wrist for taking pictures and videos – instantly sharable across Facebook and Instagram.
- U.S.’s 25 richest people paid almost no income tax compared to their net worth. This information will help fuel Biden’s new tax policy that attempts to nearly double the capital gains tax rate to 39.6% for those earning over $1m/yr.
- Home buyers might be surprised to find out… their competition isn’t other families, but corporations. Your new neighbor could be any government or investment bank – because land remains a highly-valued commodity. People will always need a place to live, and rents ain’t goin’ down.
- BNPL (Buy Now – Pay Later): People still want things ASAP, but prefer to pay ALAP (as late as possible). BNPL firms like Klarna, Affirm, and Afterpay have been thriving as of late. Remember the credit crunch – it’s coming.
- Tip #1: In Small Caps I’m watching: Express (EXPR = $5.25), Peabody Energy (BTU = $9.25), Tellurian (TELL = $4.73), Chico’s (CHS = $5.75), Houghton Mifflin (HMHC = $10.53), and PavMed (PAVM = $5.89).
Crypto-Bytes:
- Michael Saylor’s MicroStrategy is buying $400m more BTC… by issuing more debt. It formed a subsidiary to hold its existing 92,079 BTC.
- Ruffer, a macro-focused hedge fund… cashed out the remainder of its BTC for a total profit of $1.1B in 5 months.
- China Has Triggered a Bitcoin mining exodus as… Chinese miners are put off by their government’s hostility and are frantically ‘fire-selling’ their equipment.
- “It’s only a matter of time until we build a blockchain-based payment protocol into Twitter”… Twitter CEO Jack Dorsey. Jack hinted at a possible integration with Twitter and the Bitcoin Layer 2 Lightening Network.
- Binance picked 100 artists… to spearhead the launch of their NFT marketplace.
- U.S. law enforcement recovered $2.3m in BTC of the Colonial Pipeline ransom. It seemed that their bitcoin wallet was hosted on a U.S. network, making recovery easier. I find it amusing that an international hacking group used a ‘U.S. exchange wallet’ to hold $2.3m of BTC. AND, this is all happening as more and more South American countries are adopting BTC as legal tender.
- “Bitcoin is still a relatively new asset, and to see sovereign nations taking it seriously is huge”…Osprey Fund’s Greg King.
- Bitcoin-focused investment funds suffered record redemptions… by retail investors last week after May’s price drop soured sentiment. Investors redeemed the highest weekly total on record. This retail capitulation is viewed as a bullish sign – with institutions gladly taking the ‘other side of that trade.’
- Solana (SOL), a self-proclaimed ‘‘Ethereum Killer,’’ … just raised $314m in one of the biggest-ever recent token sales. Solana’s sale involved a purchase of SOL digital tokens rather than traditional equity.
- “Ransom and extortion was going on using CASH, long before Bitcoin was popular”… CipherTrace’s Dave Jevans.
- The most expensive home bought with crypto cost $22.5m… and was a penthouse in Miami Beach.
- Bitcoin and other cryptos are coming to your 401(k)… soon.
- The Bank of International Settlements’ Basel Committee… the world’s most influential banking regulator, proposed that crypto assets should be split in two categories: (1) assets eligible for treatment under existing frameworks, which would include tokenized assets and stablecoins and (2) those that are not, like bitcoin and similar cryptocurrencies. The latter "pose additional and higher risks" and banks should allocate extra capital as a result.
- The Texas Department of Banking gave the green light… for state-chartered banks to custody crypto assets.
- “Central American and Caribbean island economies are looking to utilize bitcoin as an alternative route of access to the global economy” … Ed Yago – co-founder of DeFi protocol Sovryn.
- Tip #2: ETH has a date with $10,000 by EOY.
Last Week:
Monday: With the indexes nudged up against the all-time highs, we could: 1) get over the highs – retreat and try again a few times, 2) squeak through to new highs, pause, and then embark on a new leg up, or 3) get rejected and dump for a serious correction. I know a correction sounds insane, because most are convinced that this market only moves higher. But this is a major resistance area, and thus far there's no volume and no leadership. There are several long-term cycles that are completing the second week of June, and it’s not out of the question that we’d pull back.
Tuesday: Denmark is finding that over two-thirds of local transactions made using Bitcoin aren't being properly taxed. It’s tough being a government when things are changing this quickly. I’m liking: OSTK > $100, CHPT > $30.26, ACAD > $26.08, ARRY > $16.90, and BLDP > $19.10.
Wednesday: Tomorrow carries a lot of weight. If the CPI comes in hot, are they going to ignore it, or use it as the reason/excuse to roll us over and plunge? If the CPI is manipulated to look not so bad, then I think they'll use that as the catalyst to push us up strongly. Watch IVR. The momentum traders grabbed it this morning and could make it move. IVR > $4.15 might work. By the way, pre-COVID it was a $14 stock.
Thursday: The CPI came in +0.6% which translates into 5% YoY, with core CPI (which excludes food and energy) going up 0.7%. CNBC’s Steve Liesman said that used cars alone went up 7.2% in ONE MONTH – following a 10% gain the month before. So, what’s the market going to do with this mess? First, I don't think the number was real. I'd say we're much closer to 12% inflation. But if they printed the real number, our FED would have no choice but to change their tune and raise rates. This market doesn’t feel right, and I would not be surprised if this rally was a one-day wonder.
Friday: Despite record breaking inflation, the European central bank has said it’s going to INCREASE its asset buying. We have left the world of sanity behind. Until we hear Powell publicly state (next week) that the feds are going to ignore the inflation data and stay the course, the market may just tread water for a couple days. The FED’s job today is to keep the S&P above 4232. My guess is that they keep us over 4232 so that people feel good over the weekend, but things are not right. Caterpillar (CAT) has fallen $25 in 5 sessions. John Deer (DE) is puking. How do construction and farm equipment become worthless all of a sudden? I’m watchin the miners: GDX > $39, or GDXJ > $54.40.
Marijuana:
- Adult-use marijuana programs generated $2.7B in tax revenue in 2020. This bolsters the economic and equity case for legalization. The economic argument may begin to resonate among reluctant Republican lawmakers on Capitol Hill.
- Connecticut Senate votes to legalize MJ: and the bill immediately moves onward to the house and the before Gov. Ned Lamont (D) with pen in hand.
- Nevada cannabis lounges are legalized… starting Oct. 1. The law allows for either a lounge attached or adjacent to a dispensary, or for a separate (bar-style) consumption space.
Next Week: Is Low Market Volatility Transitory?
Market Update: while we transition to a market with higher volatility.
- CPI was HOT … the market move was NOT! The vast amount of trading that has occurred over the past month, has done so inside a 40-point S&P range. At times, historical volatility over the past week was under 2%. I believe volatility has nowhere to go but up.
- The Financials (XLF) took a beating and Tech (QQQ) rallied, but neither of these actions were enough to move the S&Ps. It was the bonds (/ZB) who took control as they broke to the upside this past week.
- The Russell (IWM) also rallied and was influenced by meme stocks like AMC & GME. The volatility of the Russell is almost twice (IWM = 21%) that of the S&Ps (SPX = 12%) – with the meme stocks providing that increased volatility.
Jay Powell and the FED are Back.
- There is a FED meeting / announcement next WED. Our FED is simply a catalyst to volatility. I would advise you to block out the noise of our FED, and concentrate on the Bonds (/ZB). After all, the CPI came in ‘hot’ last week, and interest rates declined. Even the market is paying the FED little mind.
- The Bonds will take center stage because last week they moved higher (outside their expected move) forcing interest rates lower.
- This week’s volatility in bonds (/TLT) is above next week’s volatility – which tells me one of two things is going to occur: (a) if the bonds break higher – it will drag the financials (XLF) lower and that will drag the S&Ps lower, or (b) the bonds will break lower – dragging tech (QQQ) lower which could very well take the financials with it.
- Bonds are the volatility catalyst, BUT if they (/ZB) come down to about the 157 level and pause, then the market will rally. The S&Ps would like the bonds (/ZB) to remain inside the 155 to 158 range.
Volatility is Transitory!
- U.S. Dollar: Is this bid the turning point for the dollar? There is more risk in the market than the VIX is showing. The current flight to safety is the U.S. Dollar. So, I would expect the dollar’s movement higher to continue this week – until we figure out where the bonds are going to settle out.
- SKEW - highest print EVER! That means the OTM (out-of-the-money) Puts have never traded at a higher premium to the OTM Calls.
- The VVIX is sitting at 116 (over 110). So, we have bonds breaking to the upside, the dollar catching a bid (flight to safety), the SKEW at its highest level ever, and the VVIX (the volatility of the volatility index) over 110. That tells me that volatility is going to move higher over this next week / month.
Selling Premium in Lower Volatility Times:
- Get your hedges on because they’re cheap. Tip #3: For example: the VIX is trading at $15.65. You can Buy the July VIX $25 Call for $1.42 and Sell the July VIX $30 Call $1 = basically a $0.42 cent trade … and it would only take the VIX to move to 18’ish over the next 4 weeks for that trade to be profitable.
SPX Expected Move
- Last Week = $53 (EM) / Next Week = $60
- We have not breached the expected move in 9 consecutive weeks. I’m expecting that we’re going to hit either of the higher or lower expected moves on the SPX this coming week – and you can play them with ‘butterfly’ options.
Tips:
HODL’s: (Hold On for Dear Life)
- AMC – Bought it on principle,
- Bitcoin (BTC = $35,350 / in at $4,310) & buying
- Bitcoin Cash (BCH = $560 / in at $170) & buying
- Peabody Energy (BTU = $9.25 / in at $7.96)
o Sold July $10 CCs for income
- CTI BioPharma (CTIC = $2.52)
o Sold June $3 CCs for income
- Electramericcanica Vehs (SOLO = $4.49)
o Sold Sept $4 CCs for income
- Education New Oriental (EDU = $9.54 / in @ $9.52)
o Sold July $10 CCs for income,
- Express Inc (EXPR = $5.29)
o Sold June $4, $5, and $6 CCs for income,
- Ethereum (ETH = $2,325 / in at $310) & buying
- Franks International (FI = $3.4 / in at $3.39)
o Sold Oct $5 CCs for income,
- GME – Bought it on principle,
- Grayscale Ethereum (ETHE = $23.07 / in @ $13.44) & buying
- Grayscale Bitcoin Trust (GBTC = $30.78 / in @ $9.41) & buying
- Grayscale Trust (GDLC = $24.50 / in @ $39.75) & buying
- Hyliion (HYLN = $12.32 / in @ $0.32)
o Sold June $10 CCs for income
o Sold July $13 CCs for income
- Infinity Pharma (INFI = $3.45)
o Sold June $4 CCs for income
- Iridex Corp (IRIX = $7.74)
o Sold June $8 CCs for income.
- Hecla Mining (HL = $9.04 in @ $7.50)
o Sold Sept $9 CCs for income.
- Litecoin (LTC = $160 / in @ $191)
- Transocean Limited (RIG = $4.06 in @ $3.80)
o Sold Aug $5 CCs for income.
- Sandstorm Gold (SAND = $8.92 in @ $6.90)
o Sold June $8 CCs for income.
- SOS Limited (SOS = $3.84 in @ $2.91)
o Sold June $3.50 CCs for income.
Thoughts: Without blockchain, there’s no cryptocurrency. So, when the cryptos took a hit last month, that took BLOK (an ETF that invests in companies involved in blockchain technology) down. BLOK’s OTM calls are priced over equidistant OTM puts, indicating that the market sees risk to the upside. A contrarian trader who thinks that blockchain has enough buzz to keep BLOK from collapsing might agree, and consider a bullish strategy that takes advantage of its IV. If you think BLOK might rally or at least not drop too much in the next few weeks, the short $40 Put in the July expiration is a bullish strategy that has an 88% probability of making 50% of its max. profit before expiring.
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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