Song Of The Open Road (excerpt)
Have the past struggles succeeded?
What has succeeded? Yourself? Your nation? Nature?
Now understand me well - it is provided in the essence of things that from any fruition of success,
no matter what, shall come forth something to make a greater struggle necessary.
- Walt Whitman (1856)
Tuesday
Tuesday's child is full of grace, or at least that's what the nursery rhyme tells us. At least for this week, that would appear on the surface to be true. Across my screen that bears the daily performance of whatever indices I choose to watch, there appeared to be a dearth of volatility. The Dow Jones Industrials gained an inch led by Salesforce (CRM) and Boeing (BA) , though most of the "blue chip" index headed south. The Dow Transports closed flat on the day, literally (+0.04%). The S&P 400, 500, and 600 all closed down small, as did both the Nasdaq Composite and Nasdaq 100. There was some profit taking across the Russell 2000 but not in any kind of coordinated way.
Tuesday did have a negative feel to it however, as most of these indices opened much higher than where they closed. The fact is that stocks rallied quietly from lunchtime on. Facts are facts, and the facts are that advancing volume decisively outpaced declining volume at both the New York Stock Exchange and the Nasdaq Market Site, by more than 3 to 2, and almost 2 to 1, respectively. Losers narrowly beat winners downtown while winners beat losers outright up in midtown. Trading volume increased at the NYSE, but for the S&P 500.. failed to reach its own 50 day SMA for a ninth consecutive session. That certainly is not true for the Nasdaq Composite, where trading volume, even if lower over the past two sessions, has not failed to reach its own 50 day SMA (sans holiday shortened sessions) since November 13th.
While it is easy to see that cyclical groups such as energy and the financials lit the path forward, and defensive sectors such as the REITs and Utilities underperformed, this has nothing to do with any expectations for short to medium term growth. While energy continues to respond to current events, I think investors who have forsaken the group need to note that while the Energy Sector Select SPDR ETF (XLE) stands in dead last over the past 12 months, on any shorter timeline, the group's performance is much better. Energy stands in first place over the past week, as well as the past three months. In fact, Energy stands in second place over six months. This is no longer a short-term phenomena.
One fun fact that casual or peripheral investors may not realize is that the Dow Jones US Renewable Energy Equipment Index took a severe beating on Tuesday at -5.7%, but renewable energy equipment is not part of the energy sector as say oil services would be. No, this group is considered technology, so it did not matter that the semis had a decent day. The Technology Select Sector SPDR ETF (XLK) closed down for Tuesday.
As for the Financials, REITs and Utilities, the price discovery you have witnessed is a simple algorithmic response to expanding US Treasury yield spreads for the former, and higher nominal longer-term interest rates for the latter two. Yes, competition lurks for the investment dollars of those who seek nothing more than reliable income.
Stampede
I have a friend who bought one bitcoin back in early 2017 close to what were until recently all-time highs. I felt sorry for him, until recently. Hope he hung on. I haven't asked. What seemed to start out as a trickle has become a momentum fueled stampede. I had another friendly associate, an IT fellow who worked on the trading floor of the NYSE back in the day. I remember him telling me that he owned five full bitcoins and that he had already doubled his money. He told me that he wanted to buy more and that I should too. I did not. He did. Bitcoin was trading at less than $400 a piece that day.
The news has been steady. Bitcoin continues to gain mainstream acceptance, and it is not just Tesla (TSLA) purchasing $1.5 billion worth of the cryptocurrency and stating an intention to accept bitcoin as a medium of exchange for the firm's goods. It's not just Mastercard (MA) supporting cryptos on its network or Bank of New York Mellon (BK) making plans to store, transfer and even issue digital assets.
Over the weekend (not the guy who sang at the Super Bowl), it was reported that Counterpoint Global, part of the Morgan Stanley (MS) universe was looking into the investor suitability of the digital token. Now, the dam is broken, and the water flows as if a torrent. PayPal (PYPL) now permits bitcoin purchases made from its platform and plans to bring the Venmo platform into the "digital" age as well. On Tuesday, we learned that enterprise software company MicroStrategy (MSTR) was indeed making plans to offer $600 million worth of convertible paper in order to add to its already $3.5 billion stake in bitcoin. We also learned that 500dotcom (WBAI) , a Chinese interest, had come to an agreement to acquire Blockchain Alliance Technologies, a bitcoin miner based in the Cayman Islands.
Now, What?
Bitcoin, or higher quality cryptocurrencies in general, have suddenly, or maybe not so suddenly, drawn a generation's worth of demand away from traditional safe havens, or hedges against the US dollar such as gold or other precious metals. Put it plainly, this "new" utility has found its place at the Federal Reserve, European Central Bank, Bank of England, Bank of Japan, Bank of Canada, People's Bank of China, and a long line of other central banks have done all they could to skew honest price discovery, through the intentional perversion of demand for short term sovereign debt in particular and to a degree all debt and even ETFs across the entire financial spectrum.
Is bitcoin simply a younger demographic's way of countering what they see as fiat debasement, which is the same thing folks my age did with gold and silver? Alternative investment outside of the global monetary system? Will bitcoin or some other crypto rise to the level of a reserve currency? Or even "the" world's chosen reserve, displacing the US dollar from its perch? The acceptance by corporate America and the rest of corporate earth certainly makes knocking bitcoin off of its pedestal more difficult. Maybe bitcoin is today's bubble, or at least the most noticeable bubble upon an entire hill of bubbles?
It is now that I would like to point out what is being missed by those most excited to jump on this bandwagon. I am not long bitcoin, so those who are and accuse me of posting simple "sour grapes" would certainly have a valid argument. Yet, unlike missing a stock that has soared, and that I watched but did not act on, I do not feel any anguish at missing this move. It would have been a fantastic trade, but I don't think I would still be long bitcoin if indeed I had participated in this rally.
One: There is immense regulatory risk around bitcoin and other cryptos that almost assuredly is not being priced in as of yet. Two: There will be a fight over power. The power of national treasury departments and the respective central banks they work with over controlling money supply, over targeted interest rates, over taxation, and ultimately the ability to monitor and police financial crime.
U.S. Treasury Secretary Janet Yellen has only been in office a short while, but has already made waves. Yellen has spoken on this topic more than once. From her Senate Hearings prior to taking her current position, the former Fed Chair said, "I think we really need to examine ways in which we can curtail use (of cryptos) and make sure that money laundering doesn't occur through those channels." Once in office, Madame Secretary added... "I see the promise of these new technologies, but I also see the reality: cryptocurrencies have been used to launder the profits of online drug traffickers: they've been a tool to finance terrorism." Money laundering regulation around bitcoin is already taking shape in the United Kingdom.
What I Think...
The broader acceptance of bitcoin and other cryptocurrencies by financial services corporations and participation in /discussion of these markets by celebrities such as rock stars and owner of professional sports teams will hasten regulation, and eventually a power struggle will evolve between proponents of alternative currencies and those very individuals also charged with protecting national interests. Make no mistake, defending the fiat currency will be seen as a national security issue... by literally every single nation on earth.
I have no idea how far regulators will let this go before they either heavily regulate cryptos to the point of reduced utility or create their own crypto version of current fiat that eliminates the use of both cryptos and cash. Ultimately, this is where I think we go. Such a move would make all transactions transparent, thus increasing tax revenue immensely at a time when increasing tax revenues will be key. How to tax the underground economy? That's how. It makes sense that the US dollar would evolve into a cryptocurrency itself. It might make more sense to others that the IMF's SDRs (Special Drawing Rights) replace the US dollar as the number one global reserve currency. Bitcoin will be round one. That fight will be round two. My answer? I still buy gold and silver, both physical and paper. Physical for investment, and for the endgame. Paper for trading. (Futures and ETFs are paper, physical hurts if you drop it on your foot.) I remain long both (GLD) and (SLV) .
One More Thing
When the lights go out... your bitcoin is gone. On that day, and if the condition persists, you will still have your physical bars and coins and they will be worth something. So, will your neighbor's yard bird.
Trading Notes
I mean no disrespect. I have met many celebrities and many heads of state. I am rarely awestruck. I have only been on the phone with Warren Buffett, but on that day... I was speechless. I only answered a call meant for someone else, and was barely able to connect Mr. Buffett to the individual he meant to call. I do have to question exiting JP Morgan (JPM) , M&T Bank (MTB) , and PNC Financial (PNC) in their entirety in the fourth quarter. Q4 2020 was precisely when most of us were just starting to rebuild our financial sector long positions. Well, the oracle did maintain his massive long positions in Bank of America (BAC) and Bank of New York Mellon (BK) .
On top of that... Verizon (VZ) was a pleasant surprise. Pfizer (PFE) not so much. We kind of knew that a mystery investment would come from the energy sector and that it would likely be either Chevron (CVX) or Exxon Mobil (XOM) . You pal bet on the wrong horse here.
Oh lastly..., looking to buy the dip in Palantir (PLTR) ? I think I am as well. Bear in mind that the lockup period expires this Friday, so all of the bloodletting may not be over.
Economics (All Times Eastern)
08:30 - Retail Sales (Jan): Expecting 1.0% m/m, Last -0.7% m/m.
08:30 - Core Retail Sales (Jan): Expecting 1.0% m/m, Last -1.4% m/m.
08:30 - PPI (Jan): Expecting 0.9% y/y, Last 0.8% y/y.
08:30 - Core PPI (Jan): Expecting 1.2% y/y, Last 1.2% y/y.
08:55 - Redbook (Weekly): Last 0.7% y/y.
09:15 - Industrial Production (Jan): Expecting 0.5% m/m, Last 1.6% m/m.
09:15 - Capacity Utilization (Jan): Expecting 74.8%, Last 74.5%.
10:00 - Business Inventories (Dec): Expecting 0.5% m/m, Last 0.5% m/m.
10:00 - NAHB Housing Market Index (Feb): Expecting 83, Last 83.
10:00 - U of M Consumer Sentiment (March-F): Flashed 102.0.
13:00 - Twenty Year Bond Auction: Last $27B.
16:30 - API Oil Inventories (Weekly): Last -3.5M.
The Fed (All Times Eastern)
14:00 - FOMC Minutes.
18:05 - Speaker: Dallas Fed Pres. Robert Kaplan.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (ADI) (1.32), (GPC) (1.34), (SHOP) (1.21), (WING) (.23)
After the Close: (ALB) (1.12), (SAM) (2.84), (FSLY) (-.10), (PXD) (.70), (TWLO) (.31)
(CRM, BA, MA, and JPM are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
