Daily Archives: June 27, 2018

Growth Stocks

How the Blockchain Will Lower the Cost of Imported Goods

In last week’s article, I told you that some of the world’s leading firms that are making blockchain technologies a part of their everyday business operations, benefiting both the companies and consumers. And how, using current technology, it is difficult to trace every item through every step of a supply chain that is often very lengthy and complex, involving multiple parties and multiple jurisdictions.

Let me give you a brief glimpse at shipping a product. The very long paper trail begins when a cargo owner books space on a ship to move goods. Documents need to be filled in and approved before cargo can enter or leave a port. A single shipment may require hundreds of pages that need to be physically delivered to dozens of different agencies, banks, customs bureaus, etc.

And make no mistake – shipping is the very core of global trade…

The cost and size of the world’s trading ecosystems continue to grow exponentially. More than $4 trillion in goods, including 80% of consumer goods, are carried by the ocean shipping industry. Just about every item in your home today arrived there via a vast network that transports everything from food and medicine to apparel and electronics from around the world. Total trade represents 60% of the world’s GDP, and yet global supply chains are clogged with inefficiencies and heavily reliant on complex paper-based systems that I described above.

Related: Free Gold-Plated Bitcoins Available to the First 100 Investors

However, distributed ledger technology is changing the equation. For example, even Brexit Britain is looking at how the technology makes Brexit a smoother process.

You see, certificates of origin, typically provided by chambers of commerce, are needed to prove where goods were made for customs purposes. If the U.K. after Brexit is no longer in a customs union with the EU, it will be subject to complex “rules of origin” and companies will need to show which part of which product was made where in order to benefit from preferential trade deals.

The number of certificates of origin needed will likely rise sharply after Brexit. Such documents, and the many other requirements for exporting goods, could be digitized and shared through a blockchain. A standardized process could simplify and make it easier to check many parts of the supply chain including customs declarations, bills of lading [certifications of ship loads] and letters of credit. Shipments entered in a blockchain will remain there forever and can be tracked via a QR code.

Even if Britain does not go down this path, there are companies are the forefront of using blockchain to track shipments around the world.

IBM and Maersk Partner

One company leading the way in practical applications of blockchain technology is IBM (NYSE: IBM). It is teaming up with the world’s largest container shipping company A.P. Moller-Maersk (OTC: AMKBY) to help make companies’ supply chain more efficient and safer through the use of blockchain. The joint venture – 51% owned by Maersk and 49% by IBM – also hopes to automate and digitize the filing of paperwork for shipping cargoes.

The goal is to use distributed ledger technology to create an unchangeable record of transactions along a supply chain that can be shared in real time with whichever companies are necessary. The technology would allow companies at different stages of the supply chain to see the information they need about each transaction in one flow of information.

The two companies began testing the system as early as 2016 and ran a pilot program in 2017, which involved major businesses such as DowDuPont, the ports of Houston and Rotterdam, and the US and Dutch customs authorities. Other companies that are very interested in this new platform include the likes of General Motors and Procter & Gamble, as well as the port operator in Singapore, PSA International and the port operator based in the Netherlands, APM Terminals. The new venture may begin full operations later in 2018 and, on its first day, it will be tracking 18% of containerized sea trade.

A Revolution in Shipping

While there are competing platforms being developed, this is a real opportunity for IBM and Maersk since it is estimated that businesses spend up to 20% of the cost to transport their goods on processing documents and administration. The cost savings, of up to 15% says IBM, for companies should show up on their financial statements within two years.

The adoption of blockchain technology in shipping will reshape the the industry as it has not been since the move to standard containers in the 1960s. But to make it work, dozens of shipping lines and thousands of related businesses around the world — including manufacturers, banks, insurers, brokers and port authorities — will have to agree to standards and work out a protocol that can integrate all the new systems onto one vast platform.

Related: Buy These 3 Leading Blockchain Technology Stocks

When this eventually does happen, documentation that takes days will eventually be done in minutes, much of it without the need for human input. And the cost of moving goods across the world would likely drop dramatically, adding fresh impetus to the globalization that President Trump is fighting so hard against.

The adoption of blockchain in trade would do so much more too. The World Economic Forum estimated that just improving communications and border administration using blockchain could generate an additional $1 trillion in global trade. IBM and Maersk believe global trade volumes would rise by 15% when blockchain becomes the norm in the industry.

Change in the shipping industry is inevitable and is coming quickly. IBM and Maersk should be two of the main beneficiaries. Next week, I will bring you more companies developing practical uses for blockchain technology.

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ETF, Options

A Quick 185% on an ETF That’s Just Now Bottomed

If you have any interest in economic policy, especially macroeconomic policy and repercussions, now is about as interesting as it gets. I realize most people don’t get a hoot about macroeconomics, but it can be very useful for analyzing trading opportunities. (For me, it goes beyond that since I have a degree in economics which focused heavily on the macro side of things.)

We’re experiencing a real life experiment on how tariffs and trade wars are bad for an interconnected global economy. Tariffs can gain political traction because they are supposed to create or protect domestic jobs. However, as soon as other countries imposed their own tariffs, it generally just comes back to bite the industries that initially were supposed to be insulated.

For a developed nation like the US, a trade war would probably result in something like a 3% decrease in GDP. That’s a big deal when you’re talking about trillions of dollars, but it’s also not catastrophic. On the other hand, tariffs can be extremely detrimental to the growth of emerging market economies.

iShares MSCI Emerging Markets ETF (NYSE: EEM) is an extremely popular ETF for trading a basket of emerging market stocks. The heavily traded EEM does almost 70 million shares per day in share volume plus 400,000 options on average.

As you can see from the chart below, emerging markets have taken a pretty big hit lately. EEM started trending down when tariffs became a major news item. Since the actual implementation of the tariffs, it has dropped even lower.

However, a massive options trade last week in EEM suggests that the ETF is done falling for the rest of the month. This trade, known as a put ratio spread, involved a 100,000 by 200,000 put spread – which is about as big of an options trade as you’ll ever see.

More specifically, a trader purchased the June 29th 42.5 puts 100,000 times (with the stock at $43.50) while simultaneously selling 200,000 of the 42 puts in the same expiration. Now, buying a put spread is normally a bearish strategy, but the trader actually collected a credit of $0.06.

That means if EEM stays where it is or moves up, the position will generate $600,000 in profit. The max gain is at $42 on expiration, where the trade would earn $0.56 or $5.6 million. However, below $42 in EEM is where the risk comes in. Every $1 below $42 would result in roughly $10 million in losses. Clearly, there’s big money betting on EEM staying above that level through the end of June.

I like the idea of this trade, but obviously not the risk involved. In fact, selling a put spread is tough in general because the options are so cheap. I think you may be better off betting on a reversal straight up using a call spread.

For instance, with EEM at just under $44, you could buy about a month of time and get the July 20th 44-46 call spread for about $0.70. Break even is $44.70, you can make $1.30, and max risk is just the $0.70 you pay in premium. That’s a very reasonable amount to pay for a month-long trade that has 185% max gain upside.

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