I talked about putting some money on platinum early Nov 2011 and specifically also mentioned one way of doing so by buying SWC, a mining company for platinum. In the past 3 months, while platinum has increased by about 10%, SWC has advanced by 50%. If you did so, you should feel very happy with the capital gain in just 3 months or so. But I would take some money off the table or better using options to hedge against a possible correction.
I have said many times by now and am still convinced that the market is due for a correction, potentially significantly, e.g. over 5% within a short period of time. This can happen any day for now. Investors are just too much complacent and bullish, which will not bode well with the short term direction of the general market. I know I have been wrong for many weeks but I'd rather be wrong than greedy and caught up with a sudden plummeting of stocks. I do have quite a few stocks on my watch list but will only get to them if the correction comes. For the whole year, actually I think it is quite possible that the overall stock market will likely go much higher. After all, this is an election year and people will generally be made feel good about the economy. So I'm also ready to make my money work when the time comes.
In addition to the general market, I'm also thinking that oil is due for a significant drop in the next few weeks. Currently a significant component of the oil price is from the headline risk, more specifically about the potential conflict or even war with Iran. If this fear fades away, oil will plummet.
Tuesday, February 28, 2012
Friday, February 24, 2012
Vivus: a first weight-loss drug to be approved in a decade?
Vivus (VVUS), the small biotech company developing a weight-loss drug Onexa, got an extreme upbeat last Wed. An FDA advisory panel voted 20 to 2 to recommend agency approval for the drug. VVUS immediately jumped with the news up almost 100% instantly. If the drug is truly approved, it will be the first new weight-loss medication approved in a decade. You can imagine what kind of hype the market has for it. Some bulls see the stock surging to between $30 and $45 in the next 12 months from the current $20 or so.
But before jumping into this euphoria, I think you need to be very cautious and think twice. The market is essentially saying that FDA will for sure approve the drug, which is expected by Apr 17. While FDA is indeed usually following the advice of the panel, it does not always do. This is especially true when evaluating weigh-loss drugs. In the past year, 3 new drug applications of this class (including Onexa) have been turned down. FDA is very cautious about the potential side effects of this class of drugs. I think it is far from a done deal. But I must say that the chance of approval has been significantly enhanced with the panel's backing up. If I will set up a speculative position, I will organize in such a way that I may make some money either way, up or down following FDA's decision. The reaction is likely huge which will make such kind of trading possible. One way of doing so is to buy call and put options of the same strike price simultaneously. This strategy is especially effective in this type of violent price action.
But before jumping into this euphoria, I think you need to be very cautious and think twice. The market is essentially saying that FDA will for sure approve the drug, which is expected by Apr 17. While FDA is indeed usually following the advice of the panel, it does not always do. This is especially true when evaluating weigh-loss drugs. In the past year, 3 new drug applications of this class (including Onexa) have been turned down. FDA is very cautious about the potential side effects of this class of drugs. I think it is far from a done deal. But I must say that the chance of approval has been significantly enhanced with the panel's backing up. If I will set up a speculative position, I will organize in such a way that I may make some money either way, up or down following FDA's decision. The reaction is likely huge which will make such kind of trading possible. One way of doing so is to buy call and put options of the same strike price simultaneously. This strategy is especially effective in this type of violent price action.
Wednesday, February 22, 2012
I'm not alone to bet Yahoo's acquisition by Apple
Just saw a blog on Forbes talking about the possibility for Apple to acquire Yahoo. Looks like I'm not alone out there to bet on this.
Friday, February 17, 2012
I'm accumulating Yahoo shares, the lower the better
Yahoo (YHOO) was hit hard this passing week, dropping over 6%. And I hope YHOO could drop more in the coming market correction because I'm accumulating its shares. The more it drops, the happier I will be. I think at this stage, Yahoo is a hidden gem in the market, waiting to be found. The time is probably just around the corner.
Independently Yahoo is probably a history, a past glory story. There is no way it can compete with Google as a search engine, although it is still the No 2 search engine in the world. Yahoo certainly understands its own status clearly and is doing everything to try to sell itself successfully.
Believe or not, Yahoo has a lot value in it. It has $2B cash with almost no debt. It has investments in Alibaba (China) and Yahoo Japan, which is worth about $18B in total. Yahoo is trying to sell these two assets, which to me is one critical step to make its own sale more attractive. The sales negotiation did not progress well last week, which caused its significant decline. But sooner or later, the sales will go through. The recent resignation of its founder, Jerry Yang, as well as other key board directors is another important step to make the way for sale. There are a lot of rumors out there about who may buy Yahoo. Microsoft has tried before but failed. This time around, the most likely acquirer may be Apple. Apple is already using some Yahoo's applications on its iPhone. Yahoo's search engine business & email service can also help Apple to further expand its business and bring more customers. More importantly, Yahoo has worked very hard for several years to developed its technology called Yahoo's TV Widgets, aiming to bring the Web to TV. You must have heard that the unfinished dream of Steve Jobs before his death was to develop iTV, which is basically a combo of TV and Internet. I think there is a great potential synergy if Apple can obtain Yahoo. So Yahoo acquired by Apple is not something out of blue. It can be a real deal. It it happens, I'm sure it will be an offer with a huge premium. Maybe at a price around $25 for Yahoo, a jump over 50% over its current stock price.
Independently Yahoo is probably a history, a past glory story. There is no way it can compete with Google as a search engine, although it is still the No 2 search engine in the world. Yahoo certainly understands its own status clearly and is doing everything to try to sell itself successfully.
Believe or not, Yahoo has a lot value in it. It has $2B cash with almost no debt. It has investments in Alibaba (China) and Yahoo Japan, which is worth about $18B in total. Yahoo is trying to sell these two assets, which to me is one critical step to make its own sale more attractive. The sales negotiation did not progress well last week, which caused its significant decline. But sooner or later, the sales will go through. The recent resignation of its founder, Jerry Yang, as well as other key board directors is another important step to make the way for sale. There are a lot of rumors out there about who may buy Yahoo. Microsoft has tried before but failed. This time around, the most likely acquirer may be Apple. Apple is already using some Yahoo's applications on its iPhone. Yahoo's search engine business & email service can also help Apple to further expand its business and bring more customers. More importantly, Yahoo has worked very hard for several years to developed its technology called Yahoo's TV Widgets, aiming to bring the Web to TV. You must have heard that the unfinished dream of Steve Jobs before his death was to develop iTV, which is basically a combo of TV and Internet. I think there is a great potential synergy if Apple can obtain Yahoo. So Yahoo acquired by Apple is not something out of blue. It can be a real deal. It it happens, I'm sure it will be an offer with a huge premium. Maybe at a price around $25 for Yahoo, a jump over 50% over its current stock price.
Sunday, February 12, 2012
Go with Facebook's hype?
You must have heard that Facebook (FB) will issue its IPO shortly, probably in Jun this year. There is a lot of ballyhoo about that and I'm pretty sure that FB will get what it wants, a $100 billion price tag as its underwriting banks are pushing. No question, FB will be THE most successful IPO in the history and many people will like it and would to jump into its boat, hoping to become rich quickly. Will you?
I remember a few years ago when Google issued its IPO, my wife asked whether we should also buy some Google's shares. I didn't. Back then, I was much less savvy about investment and I thought Google must be very expensive around the time of IPO. Of course I was wrong and I'm still kicking myself now. So will I buy FB's shares now when it is trading on the market? No way!
At a market cap of $100B, FB will be trading at 27 times its sales and 100 times its earnings! At IPO, Google was trading at 10 times sales, more than half cheaper! In other words, in theory, you will need to take 100 years to expect FB to return your investing money based on its earnings. What a fool's game!!
Of course FB is a great company and has created a totally new networking model. Its glory may at least last for a few years. But I really think it is stupid to put your money into it at this price. Maybe I would consider when it drops down by 50%.
I remember a few years ago when Google issued its IPO, my wife asked whether we should also buy some Google's shares. I didn't. Back then, I was much less savvy about investment and I thought Google must be very expensive around the time of IPO. Of course I was wrong and I'm still kicking myself now. So will I buy FB's shares now when it is trading on the market? No way!
At a market cap of $100B, FB will be trading at 27 times its sales and 100 times its earnings! At IPO, Google was trading at 10 times sales, more than half cheaper! In other words, in theory, you will need to take 100 years to expect FB to return your investing money based on its earnings. What a fool's game!!
Of course FB is a great company and has created a totally new networking model. Its glory may at least last for a few years. But I really think it is stupid to put your money into it at this price. Maybe I would consider when it drops down by 50%.
Saturday, February 11, 2012
Annaly becomes safer and more secure
I talked about Annaly (NLY) many times in my blogs, e.g. here and here. And I have held quite a big position with it. I'm so convinced that this is one of the best income players with about 14% of field. In the past years or so, NLY has not disappointed me. I would have just earned near zero interests if I put my money simply in the bank. Last week, NLY plummeted over 3% following its earning report. It did not meet the street's estimate and earning was short of expectation.
There are two key elements for NLY to be able to offer its extremely high yield: low interest rate and high leverage. The current zero interest policy is super ideal for NLY and that's why it can continue to maintain its high yield. Since all the mortgages invested by NLY are government-guaranteed, it can also afford to use very high leverage, often in the range of 30 to 50 times. However, NLY just announced that it has started to decrease its leverage due to the ever increasingly unstable financial world and the regulatory environment. Reducing leverage means less revenue and accordingly less yield. Investors don't like that, so they dumped its shares. However, to me, what NLY is doing is making it safer and more secure. Maybe the yield may come down a bit but I feel more comfortable with NLY. Actually my bigger portion of NLY position is not about its yield, but an indirect way to earn my income as long as NLY does not drop all the way down below $15. Therefore, I will not only continue to hold my NLY shares, I may also increase my position if there is any panic selling in the next few weeks along with the overall market correction, which is something I'm expecting.
There are two key elements for NLY to be able to offer its extremely high yield: low interest rate and high leverage. The current zero interest policy is super ideal for NLY and that's why it can continue to maintain its high yield. Since all the mortgages invested by NLY are government-guaranteed, it can also afford to use very high leverage, often in the range of 30 to 50 times. However, NLY just announced that it has started to decrease its leverage due to the ever increasingly unstable financial world and the regulatory environment. Reducing leverage means less revenue and accordingly less yield. Investors don't like that, so they dumped its shares. However, to me, what NLY is doing is making it safer and more secure. Maybe the yield may come down a bit but I feel more comfortable with NLY. Actually my bigger portion of NLY position is not about its yield, but an indirect way to earn my income as long as NLY does not drop all the way down below $15. Therefore, I will not only continue to hold my NLY shares, I may also increase my position if there is any panic selling in the next few weeks along with the overall market correction, which is something I'm expecting.
Sunday, February 5, 2012
Grow your wealth on trees
Likely very few of you or even none have ever thought about timber stocks as part of your investment strategy. Indeed very few people know about timer lands and relevant companies. Actually this is another world which can be very profitable if you are patient enough. You literally can grow your money and wealth on trees.
Trees do not care about economies or politics anywhere in the world. They simply grow up year after year. The use of timbers can reach almost any corner of the world, directly or indirectly. Therefore, timber stocks are usually not closely correlated to the stock markets. For example, during the great depression, the stock market plummeted 70% but timber was up over 200%.
If you like what I said and will be interested in some timber stocks, I think Plum Creek Timber Company (PCL) is worthy of your attention. PCL has about 8 million acres of timberland in the U.S and its core business is focused primarily on owning and managing timberland. Investing in PCL has also tax advantages since it is a Real Estate Investment Trust (REIT). As a REIT, PCL has to pass on 90% profits to its investors as dividends, which will be taxed as capital gain at 15% instead of as ordinary income that can be much higher if you have a high income. Currently PCL pays a 4.2% dividend, which is significantly higher than usual dividend yields from other companies. PCL is 66% owned by mutual funds.
While PCL can be volatile in the short terms, over a long period of time it is very stable and is doing much better than the overall stock market. In the past decade in which the stock market has experienced 2 miserable crashes and has gone no where but stayed where it was 10 years ago (red line below), PCL has shot up 60% (capital gain) during the same period of time (blue line). And don't forget, it has also paid high dividends all along in addition to the capital gain. In other words, you would have been doing much better to simply let the trees grow your money.
Trees do not care about economies or politics anywhere in the world. They simply grow up year after year. The use of timbers can reach almost any corner of the world, directly or indirectly. Therefore, timber stocks are usually not closely correlated to the stock markets. For example, during the great depression, the stock market plummeted 70% but timber was up over 200%.
If you like what I said and will be interested in some timber stocks, I think Plum Creek Timber Company (PCL) is worthy of your attention. PCL has about 8 million acres of timberland in the U.S and its core business is focused primarily on owning and managing timberland. Investing in PCL has also tax advantages since it is a Real Estate Investment Trust (REIT). As a REIT, PCL has to pass on 90% profits to its investors as dividends, which will be taxed as capital gain at 15% instead of as ordinary income that can be much higher if you have a high income. Currently PCL pays a 4.2% dividend, which is significantly higher than usual dividend yields from other companies. PCL is 66% owned by mutual funds.
While PCL can be volatile in the short terms, over a long period of time it is very stable and is doing much better than the overall stock market. In the past decade in which the stock market has experienced 2 miserable crashes and has gone no where but stayed where it was 10 years ago (red line below), PCL has shot up 60% (capital gain) during the same period of time (blue line). And don't forget, it has also paid high dividends all along in addition to the capital gain. In other words, you would have been doing much better to simply let the trees grow your money.
Saturday, February 4, 2012
13 US States request to issue gold & silver currencies
Clearly I underestimated the extreme bullishness in the stock market. While I'm wiping out the eggs on my face, I still stick to my words: I think a crash is coming soon. The markets just go from overbought to more overbought. It actually becomes more dangerous each passing day. Be careful if you really want to jump in now.
I heard probably a year ago that Utah had passed the state law that will allow citizens to use gold or silver to pay for their debt. In other words, in Utah, gold and silver are legal money. Now I just read that 13 US states are requesting to allow to issue currencies based on gold and silver. See the whole story here. While I don't know if this will ever become reality due to the legal system here, this has sent a very critical signal that I think everyone should pay attention to. Clearly even in the mind of the state governments, the US$ is not reliable and safe anymore. Gold and silver are the ultimate money to reserve the purchasing power. Sure it is very volatile for gold and silver and you need a lot of courage to stomach it, but if you simply treat it as money, there is no excuse to not hold some of them at least.
I heard probably a year ago that Utah had passed the state law that will allow citizens to use gold or silver to pay for their debt. In other words, in Utah, gold and silver are legal money. Now I just read that 13 US states are requesting to allow to issue currencies based on gold and silver. See the whole story here. While I don't know if this will ever become reality due to the legal system here, this has sent a very critical signal that I think everyone should pay attention to. Clearly even in the mind of the state governments, the US$ is not reliable and safe anymore. Gold and silver are the ultimate money to reserve the purchasing power. Sure it is very volatile for gold and silver and you need a lot of courage to stomach it, but if you simply treat it as money, there is no excuse to not hold some of them at least.
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