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MEMBERS UPDATE - $MGTI $OSTK $BITCOIN LONGS & SHORT THE $TLT


Today's price action is of no surprise. The S&P 500 has gone 34 consecutive sessions without a 0.5% daily decline, which is the longest since 1995. Today the SPY closed down -.5%. The index’s average daily change is 0.30%, the smallest since 1965. The index has closed 1% lower only four times, the fewest for a full year since 1964. The entire broader market saw pullbacks across the board.


Steve Mnuchin smartly tied market action to tax reform. The latest rumor from a Mitch McConnell aid is that tax reform will not pass. Mnuchin did signal, however, that volatility will return and markets will correct if congress fails to pass tax reform. Apparently he’s willing to use the stock market as a political tool. Public criticism of President Trump from the likes of Bob Corker and Jeff Flake in addition to uncertainty from John McCain and Rand Paul has created doubt among traders. Fragmentation of the republican party has stalled Trump’s agenda at every turn. It’s likely to happen again. Mnuchin and Trump are now in a position to claim the stock market rally as their own and blame congress for the drop. Volatility is returning with the Dow -180.

$TLT Puts Trade

The first signal of impact from the Federal Reserve’s balance sheet reduction is expected to be seen in bond prices. Sure enough, the yield on the US 10-yr is rising above it’s 200-day moving average to 2.4% as demand for bonds decreases. Even bond king Jeff Gundlach says:

‘I’m not a big fan of bonds right now…once the ECB’s Mario Draghi realizes European interest rates should be higher than they are today, the order of the financial system will be turned upside down and it won’t be a good thing. It will mean the liquidity that has been pumping up the markets will be drying up in 2018…down. We’ve been in an artificially inflated market for stocks and bonds largely around the world.’

Our 130 $TLT March 2018 puts are performing well as TLT has dropped from $127.50 at the beginning of September to now below the $122 level as of today.


Bonds are dropping alongside stocks as the 10-yr yield rallies to 2.43%. The $TLT is now below $123 which bodes well for our March 2018 $130 puts. Jeff Gundlach issued an ominous tweet: ‘The moment of truth has arrived for the secular bond bull market! Need to start rallying effective immediately or obituaries need to be written.’ This TLT put trade is based on coordinated tightening from central banks around the world. So far we're off to a great start there

$BITCOIN $MGTI & $OSTK Trades + the Bitcoin Gold Fork received

Bitcoin is +$1,935 month over month and is +$5,000 year over year. After breaking out of the $5000 resistance area, BTC went as high as $6189 and is now trading around the $5700 area. I know how this feels for new folks coming in seeing us post about Bitcoin & Crypto lately...seeing the "holy shit that thing just keeps going....uhh but I can't touch this now...I'm totally late ...besides what the F is Bitcoin anyways"....look...I get it. I get that this looks like ridiculous to an outsider looking in on crypto. But just acknowledge that Bitcoin was one day as low as $.003 cents, not 3 cents but $.003 cents.

It's had a hell of a ride to get to where it is right now. Acknowledge the maturity here. Bitcoin use to run to $31 and then crash down to $1 and then go up again to $70 and come down to $8 and crash and boom again...repeating this cycle all the while it was making HIGHER HIGHS. That's the important take away to remember here. Bitcoin has yet to show you a top. What's more, since the crash of 2014 & 2015, the pullbacks have been more shallow. Bitcoin use to drop -80% plus before making it's next run to new highs. 2016 & 2017 are a departure from this behavior. Why? Because the blockchain tech space is maturing with legitimate projects coming out of the wood work and actually building upon Bitcoin & Ethereum's core tech. Take a look at he historical pullbacks per anum here on Bitcoin since 2011 and now compare those pullbacks to what you see happening in 2016 & 2017 (weekly charts):

A currency war is evolving between governments and citizens. Those is favor of bitcoin believe it to be an innovative replacement for fiat, they believe digital currency should be utilized in a digital world, they like that bitcoin’s float is limited to 21 million and they like that it allows individuals a store of value outside of one’s domestic borders. No matter how hard its opponents try, bitcoin refuses to go away. This has become the first legitimate currency alternative to the central bank system. On a weekly basis we see attacks against bitcoin coming from those who control establishment institutions. This week it was Saudi Prince Alwaleed who said bitcoin will implode and is an ‘Enron in the making’. Previously we’ve heard JP Morgan’s Jaime Dimon refer to bitcoin as a fraud and we’ve seen countries like China and Russia crack down from a regulatory standpoint. Nevertheless, bitcoin’s value continues to rally as global demand increases. The latest example is Zimbabwe’s hoarding of bitcoin as an alternative to its domestic shortage of cash. We are investing in the bitcoin revolution via portfolio positions in MGT and Overstock. MGTI outperformed in August and September whereas OSTK is outperforming in October. In the coming weeks we will evaluate the process of transitioning towards parity between the two. We are NOT selling our MGTI down here. This is nothing more than a near term pullback on the larger picture. You have to remember that MGTI is a sub $5 stock. And as such, they are inherently volatile. A -3% pullback on AAPL is like the near equivalent of a -20% pullback on MGTI. Their median volatility are totally different values. MGTI is dealing with nothing more than price action. There is no bad news here. The fast money that came into the stock for its rapid rise is taking profits on a daily basis until it proves otherwise. We're in MGTI for the big picture trend and larger story of where both Bitcoin & MGTI are going. MGTI's earnings story will inevitably surprise everyone to the upside. I'm not going to trade in & out of MGTI. Anyone who wants to can sign up for a day trading or swing traders alerts service. We are not that. This pullback here is simply retesting the breakout zone from this giant cup & handle formation. We can say that we're on the "handle" part of this formation. Take a look:

AND NOW COMPARE THAT TO $BABA

 

So right now Bitcoin is holding firm around the $5,600 area the hoopla of a hard fork into Bitcoin Gold yesterday. This is similar to the prior hard fork into Bitcoin Cash. These hard forks into Bitcoin cash and gold are more user friendly in terms of active everyday use, nevertheless, investors continue to hoard traditional bitcoin as a store of value. Some speculate that this uncertainty with Bitcoin Gold has caused MGTI’s decline but the quick plunge of Bitcoin Gold to from $160 validates not only bitcoin but MGT’s mining strategy as well. John McAfee responded to the stock correction with the following tweets:

‘MGT Sentinel update coming next week. Myself and my team have worked hard. Hard work always pays off…As Technology Visionary for MGT I’ve been working with promising companies in the blockchain space to help MGT identify lucrative avenues of research. For those who think otherwise, I am more committed to MGT now than ever.’

Much like Apple in its early days, MGT has to prove that its new product is ready for prime time. This stock decline is a case of fast money exiting shares in order to protect capital. The fast money will return soon enough; the next rally should be more sustainable if it’s associated with good news about Sentinel.

On the flip side of the bitcoin trade, Overstock is on fire.


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Yesterday, CEO Patrick Byrne announced that the SEC-approved ICO trading platform called tZERO will begin an ICO of its own on November 15th. These tZERO coins will be utility coins that are needed by firms to pay for access to the platform. After fielding a number of calls from large financial institutions, Byrne is confident this will become the largest ICO in history, eclipsing the $257 million raised by FileCoin for cloud storage. The private pre-sale is scheduled to occur between November 15 and December 31 with Byrne expecting proceeds anywhere between $250 and $500 million. For a stock that trades at a $900 million market cap this is very good news. In addition to this SEC-approved ICO platform, tZERO offers securities lending. The securities lending is not just for these ICO’s. Because it is built upon transparent blockchain technology, this securities lending is a superior alternative to what’s available from prime brokerages around the world in the $1.7 trillion industry. Settlement of securities lending and ‘failure to deliver’ has long been a major headache for the SEC. Byrne believes he has a product that qualifies as the ‘biggest business opportunity we’ve ever looked at’. It’s already operational, three months ago Byrne mentioned he had 700 symbols with $100 million in inventory. Since then, we know he’s been in talks with pension funds who would like to place upwards of $150 billion in inventory onto this secure blockchain system. Overstock will collect approximately 1% of inventory as revenue. This is a hugely profitable business which is why noted short seller Marc Cohodes jumped on board and issued a $100 price target for OSTK. This may prove to be the first ‘killer application’ of blockchain.

In summary, our primary portfolio focus is to manage the bitcoin/blockchain trade between OSTK and MGTI and to sync with central bank policy of balance sheet reduction with TLT puts. Either side of our Bitcoin trades is capable of skyrocketing higher; OSTK is capable of $100 a share, MGTI is capable of 10x returns to a $1 billion market cap if Sentinel, bitcoin or the privacy phone take off, and TLT puts promises to be a long term play as the secular bond bull market comes to an end.

ON WATCH: $USO Calls or long common:

Since the beginning of September USO has risen from $9.60 to $10.50 and is approaching a potential momentum purchase point if we see it get up above$11 on strong volume. Why is oil rising? Saudi’s OPEC in coordination with Russia is committed to production cuts in order to end the supply glut. Military skirmishes are occurring between Iraq and Kurdish troops which is also bullish for oil prices.

Our goal is to go into 2018 with an energy efficient portfolio & have no exposure to oil. But if the global narrative catalyzes a bull rally in oil, then we'll be looking to add some exposure to the $USO.

Tomorrow we will discuss our strategy around making up for the CMG trade. Although we are net positive so far by more than 32% against the benchmark S&P 500, our goal is to get above 50% by end of year. Today we sold one of our strongest portfolio winner, Boeing, for more than a 70% gain along with EMES, CMG, XOM for piss poor performance. We'll take the lick and move on. We're going to be rotating that capital into a conservative call spread with the sole intent of making those losses back.


Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”

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