Sometimes Disruption Isn’t Good

President Trump was elected because he could be disruptive and transform the economy, healthcare, immigration and the way government works – or doesn’t – depending on your point of view.

The short optimistic answer and interpretation I have for this is with change comes opportunity. How can one expect to change, to make things better if you keep operating and performing the same way as you always have?
You need to try something different and yes, sometimes shake things up a bit.

And that is what Trump does exceptionally well.

Of course, I think he also does this to keep opponents off-balance and gain an upper hand in negotiations and making deals, but that is another matter entirely.

Unfortunately, when you shake things up a bit, sometimes you can shoot yourself in the foot and undo all your good intentions.

This too, tends to be another thing Trump does exceptionally well.

This time he has had the help of congress and politically and ideologically charged policies and agendas to help him.

Trump and the GOP just passed sweeping tax reform legislation. This is supposed to, in addition to repatriating overseas cash, boost business’s ability to grow profits, hire more people, and boost the economy.

Tax reform is expected to add about .3% to the GDP this coming year.

The last time the government shutdown was in 2013 over funding for the Affordable Care act. A politically charged agenda on both sides. It lasted 16 days and cut an estimated .3% from the 4th quarter GDP.

This time the government is shut down over another politically charged and divisive agenda for both sides of congress; immigration reform.

Not only would an extended shut down be bad for millions of people and the economy but the repercussions from this could have a huge impact on the GDP for years to come. Some studies have estimated that slashing immigration and recruiting / replacing with more educated and trained workers would decrease GDP by 2 percent over the long term and cost 4.6 million jobs.

There are many opposing policy and legislative forces at play here, not only with the shut down, but also with any possible changes in immigration reform legislation. And I don’t think anybody really knows what the end result(s) will be but right now, I see the potential for more harm than good.
References for this post:

IBD – This shutdown may be worse for the economy
NBCNEWS – Slash Immigration, and GDP Is the Victim

 

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Bear With The Bitcoin

Just how crazy is this Bitcoin craze?

  1. Shares of The Crypto Company (CRCW) have surged more than 1,800% in the past month and 17,000% in the past three months, as investors and traders have bid up the price of bitcoin (XBT) higher and higher. The Crytpo Company describes itself as a business that “offers a portfolio of digital assets, technologies, and consulting services to the blockchain and cryptocurrency markets” with plans for a “rollout of a full scale, high frequency cryptocurrency trading floor.”
    The SEC started an investigating and suspended trading on their stock.
  2. A small financial tech company that just went public called LongFin (LFIN) has skyrocketed from a low of $4.69 a share in the past week to a high of $142.82 after it announced it was buying a blockchain microlending company named Ziddu.com
  3. And then there’s Riot Blockchain (RIOT), a company that up until recently was a biotech firm and has decided to get into the crypto business. They added “blockchain” to the company name and now its stock is up more than 300% in the past month.

So, maybe I should change my blog’s name to Bear with the Bitcoin and my tag line to An Alternative Cryptocurrency Blog!

My viewership and followers count could literally explode!

Hopefully WordPress will not suspend my account….

But exactly what is this Bitcoin and cryptocurrency thing anyway and is there a safe way to invest in it?

My wife calls it Monopoly Money because it is not backed by anything like gold or a government.

And in that context, she is correct. Bitcoin and cryptocurrency is a worldwide payment system.  Bitcoin is the first decentralized digital currency, as the system works without a central bank or single administrator. The network is peer-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. This is where blockchain technology comes into play.

What is Blockchain?

Blockchain, the tech behind Bitcoin, is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data. The Harvard Business Review describes it as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority. This makes blockchains potentially suitable for the recording of events, medical records, and other records management activities, such as identity management, transaction processing, documenting provenance, food traceability or voting.

All of these computational transactions require a lot of processing power. But more on that later.

Investing in Bitcoin:

For me personally, I first heard about Bitcoin back in the spring of 2016. Back then it was less than $500 a coin and a coworker of mine was telling me all about how he was buying some coins in anticipation of the upcoming split or fork in the code. Last time this happened, he said the price went way up. He tried to convince me how easy it was to invest. Just open a virtual wallet on Coinbase, link it to your bank and fund the wallet with some bitcoin. The security person in me said no way am I putting and linking my bank account money in some unregulated international open (somewhat shadowy) platform.

Now Bitcoin is over $16,000 per coin as of this writing.

UPDATE: OK, it was over $16,000 but has since lost about a third of its value in less than a week because other well-known backers of Bitcoin have recently moved their stash to Bitcoin:Cash which is known as a hard fork and a separate cryptocurrency / blockchain not recognized by Bitcoin. That and many online platforms like Coinbase are now accepting other cryptocurrencies. But still well north of $10,000 per coin.

Not investing in actual Bitcoins is perhaps my biggest missed opportunity . . .

And yet, there have been a whole host of security breaches and entire exchanges shut down because they were hacked and millions of bitcoins were stolen.

Still a risky trading platform. IF you are set on buying any crypto-currency, I would highly recommend buying a physical encrypted hardware wallet to secure your PII and money.

GBTC:

And yet, I have not been completely out of the “bitcoin” craze. I admit, from time to time I have bought one share of GBTC (Bitcoin Investment Trust) stock with a wide trailing stop whenever I was in. I was stopped out the first day of the latest pull back this past week, but not before more than doubling my money. So all in all I can’t complain.

Note: This is still a risky way to invest in Bitcoin (any stock or investment vehicle that can lose 1/3 of its value in less than a week is definitely risky) and yes, it limits you to investing in just Bitcoin. That is why I definitely had a trailing stop on this bugger to protect my losses and gains.

Another way to invest now is in the futures market through your broker. I find it interesting that many big financial names were calling the Bitcoin craze a bubble, or even not a real currency, and even worse, a type of Ponzi scheme; and yet, they feel the need to get in on the action by allowing trading.

Blockchain by nature eliminates the middle man and any controlling financial institution, so guess who felt left out of all the action….

Then of course, one could also invest in the crypto craze by becoming a miner. Miners are the people / machines in the peer-to-peer network which validate the blockchain transactions. Most miners get paid a small fraction of which ever cryptocurrency they are mining for each successful transaction they complete. The more machines you have and more computing power you have, the more transactions you can do, and, in theory the more money you can make.

There are a whole host of articles such as this one, and this one, which highlight just how much this craze has taken off.

One Consequence:

The world-wide power consumption dedicated just to mining is huge.
And so is the quest for more, affordable, power.
So that got me thinking about another possible investment strategy, loosely based on the blockchain craze.

Power.

Here one usually has two choices. Make your use and consumption of power more efficient or buy more.

DPW is developing and marketing an energy efficient power system for mining computers and datacenters. Their stock has seen similar hype action as those of Bitcoin and GBTC. Still quite risky in my opinion.

A potentially less risky investment strategy is to invest in companies or ETF’s specific to the energy sector.

Miners have already sought out remote locations with cheap hydro-electric power. One could invest in a utility such as POR which runs hydro-electric plants or one could invest in energy companies involved with supply side of generating electric power such as coal.

Datacenters:

Entire datacenters dedicated entirely to the mining of cryptocurrency are being built around the world.

China and Japan are the largest areas of miners and entire datacenters dedicated to mining activities.

In a way, I have already been investing in this indirectly due to The Donald and his tax reform policies with XLE. But BTU and KOL would be viable alternatives as well.

To me, this is a far less risky investment vehicle than trying to time the ups and downs of hyped stocks and currencies, provide potential income (dividends) and are influenced by other stimuli such as tax reform.

The Donald and Tax Reform:

Speaking of The Donald and Tax Reform, I have also put together a list of the most commonly referenced companies expected to benefit from tax reform, re-patriotization of overseas cash and stock buybacks on the right sidebar.

As always, any stock, ETF or fund mentioned is merely a suggestion and IMHO worthy of additional research on your part to see if it fits your investment profile and risk tolerance.

Hope everyone has a safe and happy holiday season.

No Love For The Bear

The stock market is nearing all-time highs.  In fact, it seems to keep reaching new ones on a regular basis.

Advancers are leading decliners.

Percentage of stocks above their 20/50/200 DMA is higher than stocks which are not.

The only thing that the bears can take some comfort in with these charts is that some of the volume and oscillators are indicating a possible downward trend.

Yes, there has not been a whole lot of love for the bears lately and they are feeling left out.

The contrarian would say, this means we are due for a correction.

The conformists or anti-contrarians say lets keep the party going.

The realists say, perhaps we should look for stocks or sectors holding up well enough but not yet joining the party.  Perhaps stocks with some “safe” characteristics such as dividends would be nice to include too.  Perhaps these are just waiting for the right invite.

The chartists say the overall market is doing well.  SPY and DIA charts look strong . . .

Though, the QQQ is perhaps looking a bit extended.

So where do we look for stocks and or sectors holding up well just waiting to rally?

Mr. Bull, I’d like you to meet Mr. Financial Sector.  He’d like to join the party.  He’s just waiting for the right conditions.   Like . . .

–          Financial Reform

–          Tax Reform

–          Inflation and Rate increases

Those are the tickets that will get him out on the dance floor dancing the happy dance.

The technical charts for the financial sector look promising.  They look like they are poised for a breakout.

Of course, bulls are hoping for an upward breakout, and the bears are hoping for a breakdown.

Unfortunately for the bears, there are the three catalysts, previously mentioned, just waiting to kick in.  And they are pretty strong catalysts.

Unfortunately for the bulls, the current administration and congress is painfully dysfunctional.  When and if all this is going to happen is anybody’s guess.

So until then, we wait and hopefully enjoy the ride.

What Would You Tell Trump To Do?

Today marks the 100th day in office for POTUS Trump.  Depending on who you ask, and which news agency you follow, you will get different answers on how successful he and his administration has been.

One thing is clear.  It is not anything like anybody would have imagined.

Trump himself admits “I thought it would be easier” and that he “missed his old life”.

So, on this 100th day of judgement and reflection, what would you like to tell Trump?

IBD recently asked this very question to a bunch financial experts.  Their answers might be a little bit surprising.

“The biggest problem we face is not saving enough money for retirement”.

“Social Security needs to be reformed”

The president and congress could start by looking at increasing not only the age limits but mandatory contributions.  Yes this is a political hot potato and good luck getting Americans to be mandated to be told what to do with their money or allowing the government to take even more of it away, but the problem exists and the system needs to be fixed.

“People need to be financially educated and make wise investment decisions”.

Addressing financial literacy early and often throughout the educational system is key.  A standardized curriculum, similar to math, science and history, which focuses on the basics of balancing budgets, how saving plans work, compounded interest, mortgages, loans, managing debt, what different investment vehicles are available and what banks and other financial institutions have to offer.

“A Lifetime Plan”

Instead of the voluntary approach to learning, saving and investing, there should be a mechanism in place which contributions are required.  To a certain extent, some companies are already doing this.  I for one have seen mandatory 1% 401K contribution and AD&D and Life insurance policies put into place.

And yes, I have heard many an objection to this.  But anybody who has worked in HR or a leadership position in a company and has the “experience” of an unexpected death or disabling injury occur to a co-worker or their family knows how valuable these contributions and plans can be.

“Tweak Deductibles for everyone”

An example of this is Health Care Costs.  Corporations can deduct it as a business expense.  Why not make all health costs deductible for everyone?

So, what would you add to the list?

Buy USA

The Trump Rally.  We all know it.  We can see it in the charts.  It is based on expectations.

Expectations for:

  • Spending on infrastructure
  • Tax reform
  • Easing of business, environmental and financial regulations

Since November 8th, the markets have been on an absolute tear.

  • S&P + 7.25%
  • DOW + 10.40 %
  • NASDAQ + 8.99%

So, do we all hop on board the rally train?  Is it too late?  With the indexes and many stocks at all-time highs, many folks are beginning to wonder if we are due for a pull back.  The chartists in my investment club certainly think so.

With so many charts looking like this:

multiple-top

It is easy to see why folks are waving the warning flags.

But I believe potential winners can be found in any market.  You just have to know how to look for them.

With this Trump administration doing so many different things, I started thinking about the constraints of my search.

This is what I came up with.

A USA based company that:

  • Does little international business.
  • Exposed to the full USA tax rate. This would also mean benefiting from proposed reductions.
  • Not dependent on international trade or directly impacted by tariffs or immigration or offshoring work.
  • And, since the up and coming economic demographic includes millennials, a company with a good mobile presence or crowd sourcing platform.
  • And was not at all time or 52week highs.

This was my initial screen.

neworder1

Ticker Company Sector Industry
ABAX Abaxis, Inc. Healthcare Medical Laboratories & Research
AMGN Amgen Inc. Healthcare Biotechnology
ANET Arista Networks, Inc. Technology Diversified Computer Systems
BSTC BioSpecifics Technologies Corp. Healthcare Biotechnology
CTSH Cognizant Technology Solutions Corporation Technology Business Software & Services
DORM Dorman Products, Inc. Consumer Goods Auto Parts
ELLI Ellie Mae, Inc. Technology Application Software
EPAM EPAM Systems, Inc. Technology Information Technology Services
EXLS Exlservice Holdings, Inc. Services Business Services
FIZZ National Beverage Corp. Consumer Goods Beverages – Soft Drinks
GRUB GrubHub Inc. Technology Internet Information Providers
ICUI ICU Medical, Inc. Healthcare Medical Instruments & Supplies
ILMN Illumina, Inc. Healthcare Biotechnology
INGN Inogen, Inc. Healthcare Medical Instruments & Supplies
LMAT LeMaitre Vascular, Inc. Healthcare Medical Instruments & Supplies
MEET MeetMe, Inc. Technology Internet Information Providers
NEOG Neogen Corporation Healthcare Diagnostic Substances
PETS PetMed Express, Inc. Healthcare Drug Delivery
REGN Regeneron Pharmaceuticals, Inc. Healthcare Biotechnology
SCMP Sucampo Pharmaceuticals, Inc. Healthcare Drug Manufacturers – Other
SEIC SEI Investments Co. Financial Asset Management
SLP Simulations Plus, Inc. Technology Business Software & Services
SPSC SPS Commerce, Inc. Technology Application Software
SSD Simpson Manufacturing Co., Inc. Industrial Goods Small Tools & Accessories
SYKE Sykes Enterprises, Incorporated Technology Information Technology Services
VEEV Veeva Systems Inc. Technology Healthcare Information Services
WBMD WebMD Health Corp. Technology Healthcare Information Services

Interestingly enough, one of the companies on this list was just mentioned in an IBD feature article which fits the criteria to a tee.

GrubHub (GRUB)

grubhub

The “I-want-it-now” millennials are pushing more services online, and GrubHub has the largest online food ordering platform in the U.S.

It also fits what they call “A Favored Trump Trade” idea.  Here is why.  Nearly all its business is conducted in the U.S.  and, consequently, GrubHub is currently swallowing a tax rate of approximately 40%.

Credit Suisse estimates a 5% reduction in their effective tax rate would drive 10 cents to 12 cents of incremental earnings per share on an annual basis.

Currently the stock is working on the right side of a consolidation pattern and is showing good strength in it’s recovery attempt.

With a quarterly report right around the corner, this is definitely one I am adding to my watch list.

Note: I am not currently invested in nor do I plan on investing in stocks mentioned in this post within the next week.  They are simply ideas for further research. 

What other stocks do you see fitting well into this new world order?