HODL & DON'T GET REKT - video below the fold
Current Holdings Since First Buy Alert - gains as of January 26:
$MGTI up 172%
$USO Calls up 128%
$NVDA calls up 100%
$BA up +129%
$QQQ Calls up +60%
$BABA Calls up +36%
$BIDU up +34%
$AMZN up +55%
$LNTH up 140%
$AAPL up +28%
$FB up 21%
$TSLA down -7%
$UVXY Calls down -5%
FAILS TO REMEMBER:
$WYNN selling too early. Buying $CMG burritos and over allocating
TRADES ON WATCH:
$UUP January 2019 $26 Put Options - will add if below $124/share by close of Monday
$GLD January 2019 $120 Call Options - will add if above $128/share by close of Monday
The theme of this week has surely been all about dollar devaluation. Take a look at this trend since 2017 on this greenback ETF $UUP
The dollar is dropping after Steve Mnuchin expressed support for a weak dollar policy. This is highly unusual rhetoric from a Treasury Secretary. The dollar is -3.2% to begin January which marks the worst start to a new year since 1987. What happened in 1987? October 19, 1987 will forever be known as Black Monday when the stock market crashed 22.6% in a single day. Most remember that date in history, but few understand why it occurred. It was a panic caused by hostility in the Middle East, fear of higher interest rates because of a declining dollar, a 5-year bull market without a significant correction and computerized trading gone mad. Sound familiar? These same characteristics could be used to describe our current economic climate. But it gets worse if you include a Chinese trade and currency war. I'm not saying that we're on the precipice of a similar reaction on the basis of that history...we're simply pointing out certain market variables that are similar. If anything, Bitcoin & all things blockchain infrastructure are all net bullish.
We’ve already discussed de-dollarization in prior BotTrigger posts. it’s now looking like this could evolve into the theme of 2018. Is it a surprise? No. China’s petroyuan plan has been in the works for years. With foreign countries someday able to replace the dollar in oil’s trade, it was widely expected to produce declining global demand for the greenback. Perhaps this was even part of the motivation to launch an alternative global currency like bitcoin. Declining demand for the dollar brings multiple consequences. Just like in 1987, the Federal Reserve will have to raise interest rates more quickly than anticipated which will cause real estate to cool. The latest data shows it has already begun as existing home sales were -3.6% in December and housing starts were -8.2%, the biggest drop in over a year. Those declines will worsen if the Fed is forced to hike interest rates because of a weak dollar.
Trump and Mnuchin prefer a weaker dollar in the short run because it helps to re-balance the trade deficit; longer term they hope for a stronger dollar generated by economic strength. The second part of this message was lost in translation at Davos where the financial community pounced on Mnuchin for trying to devalue the currency. Europe’s Mario Draghi is furious because of the harsh impact on the euro. Ray Dalio worries about weakened demand for U.S. Treasuries as well as other dollar-denominated assets. David Rosenberg tweeted: ‘Rising bond yields. Full employment. Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987. Start rebalancing.’ Despite a slight Thursday bounce, UUP dropped from $23.65 to $23.25 on the week. We are adding $UUP put options on the watch list as the process of portfolio re-balancing begins.
This could be the start of a dominant 2018 trend or it could be nothing more than a bull market blip. Technicals will provide us with proof. So far we have not been forced to sell the 25% allocation of $UVXY puts nor have we been forced to sell the 10% allocations of $QQQ or $USO. Why? Because the Treasury and Fed’s impact on market stability and liquidity is in an entirely different realm today than it was in 1987. De-dollarization and trade wars are certainly a risk, but in this environment it has paid not to overreact.
According to Bank of America, 98% of global equity markets are now trading above 50 and 200 day moving averages. This week set a record for inflows as $33.2 billion poured into equity funds and $1.5 billion bought into gold. Cash allocations are at a record low of 10%. Those who have been under-invested over the last 23 months are throwing in the towel as investors believe Trump will keep the rally alive. Ordinarily, these kinds of statistics should cause portfolio managers to take profits and sprint towards 100% cash. Instead, they’re doing the opposite. New highs, new highs, and more new highs. Everyone is going all-in for exposure to the stock market growth engine even as history screams from the dust that rising interest rates, trade wars, and dollar weakness represent a toxic combination that caused both the Great Depression and 1987’s Black Monday. We dealt with the risk of trade wars last year and it never evolved into a market moving variable. This week’s dollar fear could have crushed markets, instead the Dow rose another 500 points. Uncharted territory indeed.
Along with Amazon, NVIDIA, Lantheus Holdings, nearly everything is up across the board. You actually had to be completely risk adversed to have missed out on the greatest bull run of our century in these last few years. Simply holding Cramer's old FANG stocks would have outperformed the S&P by a wide margin. Moving on...
To guard against risk, without overreacting to it, we plan to utilize tight momentum sell points on $UVXY $USO & $QQQ (we're not giving those gains back) in addition to synced allocations of $UUP puts, $GLD calls, and bitcoin/blockchain exposure via $MGTI, $GBTC, $OSTK, $BLCN and $BLOK. This hedge should surge if the bull market ever corrects. The blockchain space is in the midst of a January stall which has prohibited us from adding exposure. MGT just announced the departure of John McAfee from its management team as he opts to focus 100% of his efforts in the crypto economy: https://www.prnewswire.com/news-releases/mgt-capital-ends-relationship-with-john-mcafee-300588713.html
I understand this might have a negative reaction to it, but that is only a short term reaction. Net wise this is good for MGT Capital. Perhaps McAfee’s presence was a liability for institutional investors who feared his brazen style. As much as I've admired certain aspects of McAfee, there have been some concerning developments of hearsay & overall negative sentiment around the stability of his outspoken personality. Whether he was the focus of bearish attacks by hackers or extortion that many of you might have sniffed up on along the last 2 months....we're not going to fixate on any of that here. We've been in MGT purely on the basis of bullish technical & fundamental narratives. The company he leaves behind is in good shape. This move will ‘position MGT as a pure play cryptocurrency mining operation, led by Stephen Schaeffer, President of MGT Cryptocurrency Strategies. The Company currently owns or operates approximately 5,000 Bitmain Antminer S9 Bitcoin mining rigs and 50 GPU-based Ethereum miners, capable of generating over 65 Ph/s of computing power when fully deployed by the end of February. Moreover, MGT is in negotiations that would triple its mining power over the next several months. From a financial standpoint, the Company has never been stronger, ending last year with $9.5 million of cash, no debt and minimal payables.’ McAfee will remain a major stakeholder. Stock action has been weak since McAfee resigned as CEO; turns out this is a guy not cut out for corporate life. MGTI is one of our biggest positions to date and we are bullish on MGT for good reason. We're not the slightest concerned about this current pullback cycle. $MGT is a long term play on America's largest bitcoin mining farm. Wall Street isn't going to simply give up the reins to China, Japan & other mining superpower farms without a fight. They're bets on America's expansion into cryptocurrency mining will largely be placed domestically on their home team here on $MGTI
Back to the greenback theme, currency war dictates economic decision making. What else could happen because of a dropping dollar? One year ago we were worried that Trump tariff’s would cause too strong of a dollar. What’s he doing now that China has committed an act of ‘economic aggression’? He’s back to work on trade wars. Wilbur Ross is back in the headlines. If China is successful in its policy of de-dollarization, Trump is likely to retaliate. Yes, tariff’s may help stabilize the value of the dollar but it will come at a great cost...negative economic growth. We’re on the cusp of major posturing caused by currency wars.
How should we play it? Ordinarily such activity would derail the stock market rally and you’d want to own S&P 500 puts but that might not happen because of Mnuchin manipulation. We've seen how difficult/futile shorting this market can be. The next best thing is to own gold, dollar puts, and bitcoin. As soon as this coming Monday, we may be taking a 3 to 5% allocation of $GLD January 2019 $120 calls as GLD rises above its momentum purchase point of $128. We want to make sure that $GLG at least closes above $128 near the close of the session... and we’re considering a similar allocation on $UUP January 2019 $26 puts as it drops below $23.50, closing this Friday @ $23.26. As long as the U.S. and China engage in financial warfare, these two allocations could grow to dominate Q1 portfolio allocations.
Love how CNBC is finally catching on & proud that BotTrigger was pounding the table back in March of 2017 (late, but better than catching on just now). For those who think the party is dying out and Bitcoin is doomed: we have more media coverage at this point in time than any other point in history. Transactions volume & BTC user wallets growth are exponentially accelerating. This is the "User Adoption Era"
Over the weekend, we'll outline a separate post dedicated to crypto & bitcoin technicals doing some forecast discovery. The
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