Blockchain, Beverages, and Baloney

 

Blockchain is a digital distributed ledger of transactions in a decentralized database. It continuously updates digital records in real-time across a network of computers. As a means of eliminating huge amounts of record-keeping, its use is very powerful. But the word “blockchain” by itself also has power; the very word, at times has taken the lead driving stock price.  Just adding it to a company name, has in the past, attracted new investors to the company’s stock. There were times when innocent, unaware investors have been duped.

A Lesson in Blockchain Frenzy

The year was 2017. The cryptocurrency market was experiencing an amazing bull run which drove bitcoin past $20,000 for the first time (by late 2018 it fell back below $4,000). Many speculative digital coin offerings were springing up during this crypto-frenzy. A large percentage of these so-called blockchain projects were barely legitimate or outright scams.

The Long Island Iced Tea Company (OTC: LBCC) was trading at about $3 per share.  They decided to rebrand their modestly successful beverage company to perhaps take advantage of capital that was flowing into the digital asset space. The beverage maker made a simple name change to Long Branch Chain Company and had its ticker symbol adjusted from LTEA to LBCC. This move led to an almost immediate tripling of the bottled tea’s stock price.

Other than the name change, the LBCC’s blockchain strategy was never defined. Management had early on stated that it would be “shifting its primary corporate focus toward the exploration of and investment in opportunities that leverage the benefits of blockchain technology.” LBCC had also announced plans to acquire Bitcoin mining hardware. These plans were never carried out. The Nasdaq stock exchange eventually delisted the company, in part because they believed management was not being forthright with investors. This caused the stock that had at one time approached $10 to fall to $1.10 per share. The delisting pushed investors to over-the-counter desks to exchange shares.

 

 

Long Island Iced Tea Update

This past week, on February 22, almost three years after the name change, the U.S. Securities and Exchange Commission (SEC) revoked Long Blockchain’s stock registration. This revocation effectively bans or prevents public investors from trading in the company’s shares. The SEC stated that Long Island’s “blockchain business never became operational” and that the firm has failed to report on its financial results for the past 3 years.

The company is still making its beverages, primarily ready-to-drink iced tea and lemonade, under the “Long Island” brand.

Investment Lesson

Information, both trustworthy and dubious is plentiful in today’s digital communication world. We’re now aware of more options of things we can do with our money and we have more ways to investigate. Looking behind the curtain should be easier than ever. Hardly anyone makes a retail purchase like an appliance without reading reviews. Dining out at a new restaurant, for many,  involves checking to see how many stars Yelp visitors have given it.  Investing in a company is arguably more important than buying a microwave or ordering a poke bowl. Yet, credible company research is often the last place many investors turn, even though it can steer them through hype. There are layers of information from management plans, to accounting methods, to the industry as a whole that investors should, if not understand, find a source of trustworthy research.

Investors chasing companies because the crowd is or because it gives the appearance of being involved in something it isn’t can be avoided. Present-day examples of companies rebranding to attract capital is, of course, the so-called covid stocks. There are many examples of companies rebranding or getting their name viewed as a Covid Stock that probably should not be. The result is a dramatic increase in the volume of shares traded and share price. For example, Kodak (KODK) climbed 2,441% in one week last year by rebranding itself as a covid stock. It wouldn’t surprise me if begin to see the same with “green” publicly traded companies.

It’s more critical than ever to read the “reviews” and find out how many “stars” something is given and why. In the world of trading equities, this means finding company research providers of high integrity and heightened knowledge of the company.

 

 

Research, analysis, and company data are reasons why Channelchek’s usage keeps expanding. Registered users on the platform are free to explore what veteran, FINRA registered equity analysts are saying. With tens of thousands of research downloads and even more investors hearing directly from companies’ management on the YouTube channel, regular visitors to Channelchek are apt to improve their chances of being able to read the tea leaves.

Take-Away

Make it your business to know what you’re investing in and know what you own. Find sources of analysis you trust. Treat every investment with more care than a $25 Amazon purchase. Beware of artificially sweetened tea offerings. And, with the current frenzy toward ESG, be cautious, it’s not that easy being green.

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading:

Small-Cap Names in a Big Crypto Market

Managing Investment Portfolio Risk

Lithium Ion Battery Recycling Heats Up

 

 

Sources:

https://www.sec.gov/Archives/edgar/data/1629261/000149315218001393/ex99-1.htm

https://www.sec.gov/Archives/edgar/data/1629261/999999999721000824/filename1.pdf

https://www.coindesk.com/nasdaq-believes-publicly-traded-firm-long-blockchain-mislead-investors

https://www.coindesk.com/nasdaq-believes-publicly-traded-firm-long-blockchain-mislead-investors

https://www.crowdfundinsider.com/2017/12/126347-former-long-island-iced-tea-corp-now-long-blockchain-corp-signs-convertible-debt-facility-support-blockchain-pivot/

https://arstechnica.com/tech-policy/2017/12/iced-tea-company-stock-triples-after-adding-blockchain-to-name/

https://www.crowdfundinsider.com/2017/12/126259-long-blockchain-corp-withdraws-proposed-public-offering-company-pivots-beverage-based-business/

https://stocktwits.com/symbol/LBCC

https://www.coindesk.com/long-blockchain-risk-exchange-removal

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Why Elevated Unemployment isn’t Hurting Stocks

 

Trends in unemployment and the coinciding trend in stock market valuation have run counter to each other over the years. It is not a 100% negative correlation as stock market strength, and weakness tends to also follow other measures. These could include disposable income, consumer optimism, debt levels, and other factors. The other related measures don’t always track each other, so one factor normally takes precedence. Often, it’s whichever indicator the market decides to give more weight to in any time period — when they’re headed in different directions, the market obviously can’t move with them all.  But, unemployment as a contra-indicator of overall market direction is very strong.

It was reported yesterday by the BLS that Jobless claims declined by 111,000 from the previous week to a seasonally adjusted 730,000. This is the lowest in over two months and the sharpest one-week decline since August. The direction seems positive, but prior to last March, unemployment benefits had never (notice no time period in “never”) topped 700,000. The percentage unemployed in April 2020 reached 14.7% which is the highest rate since the Great Depression.

How Important is the Rate of Unemployment?

Direction matters to the market more than any absolute number. Market participants want to know if something is getter better or worse than yesterday, not a year ago, or even 90 years ago.

The most recent relationship coincides with a weakened job market that has not grown since the 2020 election.  Hiring has averaged only 29,000 a month from November through January. Numbers can be deceiving as well. Although the headline unemployment rate reported was 6.3% in January, a broader measure that incorporates those that may have become exasperated and discontinued their job search, borders on 10%.  So the picture is improving but not good by many standards.

All told, 19 million people were receiving unemployment aid as of Feb. 6, up from 18.3 million the previous week. About three-quarters of those recipients are receiving checks from federal benefit programs, including programs that provide jobless aid beyond the 26 weeks provided for in most states.

A Look at the S&P 500 Versus Unemployment  over the past 20-years (Orange line is Unemployment
as reported by the BLS)

 

Last week’s drop in applications was concentrated in two states, California and Ohio, where they fell by a combined 96,000. Ohio officials had said earlier this month that a surge in new applications was driven in part by a jump in potentially fraudulent claims. That now appears to have faded. Other factors outside the norm that may have impacted the numbers are the winter storms and power grid problems in Texas during the week. It’s difficult to factor out that “noise” and there is always a certain level of noise including natural disasters, fraudulent claims, temporary industry shutdowns, etc.

It helps to see the way unemployment and the market (measured by the S&P 500) track in order to visualize if we have deviated from an established pattern. Obviously, a pattern that is easy to get your head around, when a lot of people are out of jobs and the economy isn’t very promising, stocks sink. And when the unemployment rate drops because payroll numbers have risen, stocks rise. Keep reading, so you know just how closely correlated the two are. 

Look at that chart above; the two lines are almost perfect inverses to each other, until the coronavirus spike last Spring. They cross during large economic shifts such as the dot-com bubble around Y2k, again at the 2008-2009 financial crisis, ad in 2014 as the unemployment rate perked up to pre-recession lows, stocks climbed to new highs. Last year the two lines raced in opposite directions when the decision was made to reduce the number of people headed to a job every day.  Since the economic shutdown, the unemployment rate has been reduced by more than half after reaching 14.7% last April. As for stocks, they have risen about 70%, from the late March 2020 bottom. The market improved some before the jobless rate fell; this is likely in anticipation of the improvement. A decrease in those unemployed was presumed to be easy to anticipate as a turn in the economy was presumed to be hinged on medical approvals in the works.

Take-Away

It is not irrational to understand why stocks are near their all-time highs while unemployment is near their numerical highs. As long as the unemployment rate continues to fall, history suggests stocks will continue to rise. The weekly employment numbers contain information worth paying attention to under any economic conditions.

Do you expect a year from now, the U.S. unemployment rate will be lower than today?  Factor that into your stock market forecast. What actually happens remains to be seen. Over the past 20 years, the unemployment-stock market correlation has held a reliable inverse relationship. Is the market still ahead of itself in predicting further improvement in stocks? As always, we can only look at stats from the past, never the future.

 

Suggested Reading:

What Stocks do You Buy When the Dollar Goes Down?

How Did the Stock Market Perform Under Each President?

Managing Investment Portfolio Risk

 

 

Sources:

Unemployment Insurance Weekly Claims

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