Microsoft is breaking out

I love Microsoft (MSFT) as it has been very nice to me. It often listens to me and behaves as instructed. Most recently I said MSFT should go over $40 soon. Well, it just did! What is more impressive is that MSFT has just broken out its 10 years price channel.  As you can see below, MSFT was basically side-walking in the past 10 years without going anywhere. Now it has decisively gone over the top resistence line. This is very critical technically speaking. It often suggests MSFT may likely starts its next leg bull run. As I said many times in the past, buying, holding solid companies that pay high & increasing dividends and reinvesting the dividends can make you very rich in the long run. MSFT is definitely one of such stocks.

 

So should you buy MSFT now? Certainly it is not bad for a long-term investment. But if MSFT continues to listen to my instructions, then I think it may come down a bit first but it has a very strong support at around $38. Buying around $38-39 will be another great opportunity for you before it runs much higher. $45 is its next stop in the near term.

 

Microsoft is like a cash cow minting money for you non-stop. Buying such stocks has another great advantage: sleep peacefully at night during a severe market correction. I cannot tell you the exact date but this market is due for a correction, likely a severe one like a 10-15% decline that can happen any time now. When it does occur, great cash-rich companies like MSFT can fare very well when most people run for safety. See what happened here to such stocks during the last >10% correction. 

Better odds to short Mannkind

Yesterday, the FDA staff released their review on Mannkind's (MNKD) inhaled insulin product, Afrezza, which will be subjected to Adcom review on Tue, Apr 1. The FDA staff raised questions about dosing, missing data, bronchospasms, and Afrezza's adverse effect on lung function. As I said a couple of weeks ago, I think the chance of non-approval of Afrezza is high. With today's information on the FDA's assessment, I'm even more confident that it will be miserable for Mannkind at the Adcom.

Monday will be the last trading day before the Adcom. If you also like the odds and want to play with it, pick up a few put options on Monday and wait for the fun playing out the next day. But remember, this is either a windfall or a death with your position. If I'm wrong, your put options will go to zero. So only bet with what you can lose.

Macro: The Bottom Line (3/24/2014)

Yellen's faux pas

 

Barely two months into the job, Federal Reserve Chair Janet Yellen broke the cardinal rule of central banking: keep your public statements vague. Instead, Yellen gave the clearest indication yet that the first Fed rate hike would come in the second half of 2015. What transpired was a massive bout of bond selling, a surge in Treasury yields, and a strong rally in the US dollar.

The slip of the tongue was related to the issue of when the Fed would hike rates after it had fully "tapered" its quantitative easing. Ever since the FOMC first started to discuss tapering, it had always attempted to reassure markets that reducing purchases wasn't the same as monetary tightening. Or in other words, the end of money printing didn't automatically mean rate hikes. To drive home the point, in every FOMC statement thereafter, it made sure to mention that rates would remain "exceptionally low" for a "considerable amount of time" even after the end of QE. 

Well, how long exactly is a "considerable amount of time"? That's the question that market commentators began to pose in ever increasing numbers, especially as US economic data (recent weather effects notwithstanding) began to point to a robust recovery trend. And at Yellen's first press conference as Fed chair this past Wednesday, one of the reporters had the temerity to pose this question directly to the top. Yellen's response? That "considerable amount of time" would be data-dependent, but would be in the ballpark of six months after tapering is complete. Considering that most expect QE to be wound up by the end of 2014, that would suggest a Fed rate hike as early as mid-2015!

Now, you may be wondering: given that we on Red Bull have been arguing for so long that the era of easy money is not coming to an end anytime soon, isn't this a direct contradiction of our view? Not necessarily. First, for what it's worth, we see Yellen's "six months" as, at best, a rough estimate from a nervous new Fed chair facing reporter questions for the first time. With the press blowing this one line out of proportion, it's easy to forget that the FOMC on the very same day reinforced the message that any rate hike would be dependent on evolving conditions. In other words, even if unemployment is now on the verge of penetrating below the Fed's previous 6.5 percent threshold, should the US economy continue to exhibit imbalances in other areas, the Fed would not hesitate to remain "lower for longer" on rates. And these imbalances are certainly there, from the after-effects of a surge in inventory buildup in 2013, to inflation that remains stuck far below the Fed's very own 2 percent target.

Assuming the Fed remains true to its dual mandate, it's hard to see any rush to the exits by policymakers from their highly accommodative policy. Even if, for a couple of seconds on Wednesday, Yellen seemed to suggest otherwise.

An elite dividend healthcare stock with a short-term trading opportunity

If you know any healthcare stocks, you must know Pfizer (PFZ), the world largest pharmaceutical company in terms of the market cap. Pfizer has gone through quite a challenging period in the past few years due to losing patent for several huge blockbuster products, including Lipitor, the world biggest ever drug (over $12 Billion in sales). But believe or not, Pfizer is slowly bringing itself back and becoming stronger and stronger with more and more promising drugs coming to the market. You can consider Pfizer as an elite dividend paying company for your long-term investment. Buying at this level (around $30) is likely a good entry point.

Now there is potentially a stock-moving event scheduled for Pfizer. On April 6, Pfizer will have a conference call with analysts to discuss the findings of its trial of palbociclib for breast cancer. Initial results reported were very promising. Some analysts have already estimated that if approved, this drug may bring multi-billions to Pfizer annually. If the April 6 meeting provides any further evidence about its approvability, then PFZ stock price will likely respond very well upwards. If the news is disappointing, then PFZ will likely decline a few points. So what is the best strategy to play with this event? If you are already considering to buy PFZ at the current level for long term, I guess you should be happy to buy it if it drops a bit, right? So selling its put options is a fantastic way for a win-win play: you either walk away with some quick and free money (income) if the news is good, or you buy PFZ at a lower price for long-term dividend reinvestment, if the news is disappointing. This is kind of situation I’m always looking for to either boost my free monthly income or my retirement portfolio. I cannot lose either way!

Oil is going to drop

Crude oil has advanced to around $100 these days following the Ukraine crisis but I don't think it is sustainable at this level and will very likely plunge in the next few weeks. The reason is quite similar to what happened last Sep. You can read that blog of mine to get a sense. Just this time, it is responding to the headline risk on Ukraine. There is another bearish indicator flashing: according to the "Commitment of Traders (COT)" report, traders are too bullish and have come to the extreme level to expect that oil will continue to rise. This is often the sign of a top and the precursor to a decline. If you are interested in putting money to oil companies, you better wait as you will get a much better price. If you are a risk taker, willing to speculate, then SCO is your bet to profit from the declining oil price.

Macro: The Bottom Line (3/17/2014)

-China confirms expectations by widening yuan trading band

-ECB President Draghi (finally) awakens to the Euro's strength

-Another update on Ukraine

China confirms expectations by widening yuan trading band:

 

It wasn't too long ago when we posted an extended note on the Chinese yuan. If you recall, we noted in our post that the PBOC (China's central bank) was deliberately engineering weakness in the renminbi, in order to convince the markets that the currency is not a riskless one-way bet - ostensibly ahead of a relaxation in its exchange rate management. Well, policymakers did just that over the weekend, increasing the currency's allowable daily trading band to +/-2% around the PBOC's daily reference rate (from +/-1% previously). The immediate reaction as of the Asian market open on Monday was as one would expect, with the RMB selling off amid heightened demand for put options on the currency. But does this herald a longer-term spell of weakness for the renminbi? 

We continue to stand by our previous view, namely that the near-term doldrums for the RMB are just that: near-term. The fact is, the PBOC has picked possibly the perfect-storm moment to announce this latest liberalization of the exchange rate. The past two weeks have not been kind to the China bull: just as investors were still reeling over the end-of-February yuan weakening, you also had weak economic data (including as whopping year-over-year 18% drop in exports), as well as the country's first onshore corporate bond default. But what do these events mean in a broader context? Well, the seemingly catastrophic exports data is a rough indicator at best, heavily distorted both by the effects of the Chinese New Year and over-invoicing practices last year that artificially inflated the 2013 number (practices that Chinese authorities have since cracked down on). As for the corporate default, this has shown no signs of spiraling toward a systemic crisis. Instead, the considerations that are most relevant remain the same: a still-formidable export engine, massive FDI inflows, favorable balance of payments (especially compared to most EM peers), and a government with deep pockets in case events take a turn or the worst. In short, the recent events do warrant some additional attention to developments in China. But all things considered, this soft patch in the RMB represents an opportunity to buy into the yuan.

 ECB President Draghi (finally) awakens to the Euro's strength

 

Last week, we posted a rather strongly-worded reprimand of the ECB's obstinacy in the face of the Euro's relentless climb toward 1.40. To summarize, we simply did not view the current situation in Europe - strong Euro, ultra-low inflation, stubbornly high unemployment, prohibitively tight credit conditions for small businesses for many countries - as sustainable. Something would have to give, and the very least the ECB can do is to show some concern rather than kicking the can down the road.

 

Well, ECB President Draghi seems to have finally awakened. At a speech in Vienna on Friday, Draghi noted that the Euro exchange rate would be more "relevant" going forward in deciding on the course of monetary policy. He added that should the strong Euro cause inflation expectations to become unanchored (in a way that could push inflation further toward zero), the ECB would answer with "additional monetary policy measures."

 

True, this is not recipe for action. But nonetheless, it's the most unequivocal sign yet that the top echelons of the ECB would be loath to tolerate a Euro exchange rate north of 1.40. Until we see more concrete signs or further jawboning from the ECB heads, it's still premature to call a screaming sell on the Euro. But the days of the currency's upward march are likely numbered.

 

Another update on Ukraine: The latest "big news" out of Ukraine is the announcement that over 95% of voters in Ukraine's Crimea region have declared support for a union with Russia in a referendum on Sunday. This effectively gives the go-ahead for Russia to annex the Black Sea peninsula from its neighbor. Only problem is: neither the EU nor the US recognize the referendum, and have threatened impose sanctions on Moscow (which will start with visa bans on Russian officials, but could evolve into something more serious such as economic restrictions). Despite the threat of an extended standoff between Russia and the West, we continue to warn against reading too much into the saber-rattling. After all, it's in both sides' interests to avoid rocking the boat too much and to avert broader economic implications.

Relief rally today

Exactly as I predicted over the weekend, "......on Monday, the stock market will shoot up and gold will tank, just reversing the course of the two at least in the very short term. " Today, both Dow and S&P shot up 1% and gold plunged 1%. You may call this being a pure luck to make such an accurate prediction. Sure, any short-term prediction is always risky and gambling. But if you know how the market is working, you probably will get some sense where it will likely go next. This is a textbook behaviour, so-called "relief rally". It is typical for the stock market to dump everything when a crisis is approaching and only go to the "safe haven" such as gold and the Treasury. As soon as the crisis is actually materialized, the market is "relieved" and start to go up, transferring money from gold and Treasury into stocks. But don't believe the market will truly calm down. Expect to see more schizophrenia-type of up and down volatility till the crisis is truly resolved or a solution is found.

How does a crisis create a great opportunity

I guess you must know the Ukrainian crisis, which is still exploding and the climax of it is the coming Crimea referendum tomorrow. Crimea will decide whether it wants to join Russia or still stays in Ukraine. It is almost a sure thing that Crimea will vote to join Russia. So in the past couple of weeks, the stock markets were tanking and gold was climbing up the wall of worry. Let me first make a bold prediction: when the result of the Crimea referendum is know on Monday, the stock market will shoot up and gold will tank, just reversing the course of the two at least in the very short term.

Now, this is not the main point of my today's blog. What I really want to convey to you is to pay attention to the Russian stock market and grasp the rare opportunity to make some good money from this crisis. It is rather complex to explain the situation but to simplify it, there are a couple of points in my mind that are critical and will lead to my conclusion why this is such a great opportunity:

• Russia is not Iraq or Libya that can be easily conquered by others. The US is not the sole superpower anymore as it used to be that can easily threaten anyone with force. In other words, there is almost zero chance that there will be a direct war between Russia vs US or EU for Ukraine.
• Economically and politically, it is definitely a loss-loss for Russia and for US/EU if the crisis continues with sanctions implemented. Russia provides 30-40% of the natural gas critically needed by the EU; This is also the critically needed income for Russia by exporting natural gas.  The US will need Russia's cooperation and support for many geopolitical crises around the world. If they are stuck with this Ukraine crisis, every side will suffer. So for the best interest of everyone, they will find a peaceful solution acceptable to each one. Right now it is just showdown for each one's face and no one wants to appear to be weak. But under the table, I'm sure a lot of negotiations are under way and you will hear a solution before long.
• The market will always overreact to any crisis. But none of the past crises in similar situations had any long-lasting effect on the stock markets. This is so-called headline risks for investment that people dump stocks simply due to scary stories appearing in the headline news. But in a few months from now, you probably will hardly hear anyone talking about it anymore. People have a very short memory, regardless of how devastating an incident is felt.

So if we understand this logic, what kind of the opportunity is presenting itself. Well, I think you should consider to buy the Russian stocks at some point in the next few weeks. The lower the Russian stocks go, the better it will be for your future profit! The Russian stock market was one of the cheapest in the world even before this crisis broke. It has since plunged another 10-20% and become cheaper. But there are a lot of values in this market. Think about Greece as an example. When its economic crisis reached its peak 2 years ago, no one wanted to touch anything from Greece. But do you know that the Greek stock market was one of the best in performance last year, increasing over 30%? I'm pretty sure Russia is in a much better position than Greece and when the crisis is over or forgotten by the world, its stocks will skyrocket. The best time to buy is when everyone is running away, not when everyone has realized that a bad situation has turned around. I don't think the best buying time is now but I think it is approaching and very near for the Russian stocks. One easy way to buy Russian stocks is via the ETF for the Russian stock market, RSX. Keep an eye on it!

Can MannKind survive?

April 1, the April Fool's day. What an irony for MannKind (MNKD), a biotech company that asks the FDA to review its diabetes drug, Afrezza, at the FDA advisory committee (called Adcom). The Adcom is scheduled on April 1, 2 weeks from now. Can Mannkind survive this judgement on the April Fool's day? I highly doubt!

Afrezza is inhaled, rapid-acting insulin, used to be considered revolutionary. Insulin is in high demand and widely and frequently used among diabetic patients but until now it can only be injected, a painful formulation. MannKind invented an inhaled formulation and if successful, it would be a huge blockbuster with no question. It was so appealing that the world No 1 pharma, Pfizer, licensed in this product, trying to bring it to market. Unfortunately it failed and Pfizer returned it back to MannKind. Now MannKind has still not given up and it is trying to make it work by itself. They did a phase III study, but you know what? The study only involved about 170 patients, a tiny study population size in a final stage study!! This is just beyond me to understand how they could come up with this idea to do such a so-called phase 3 study to convince the FDA that this drug is working just fine.

I bet the Adcom won't recommend to approve Afrezza and MNKD will drop like a stone. So far MNKD is trading around $5 and it may plunge to $1-2 if it fails. If you are a risk taker and want to "gamble", this is a good opportunity to test your luck. Buying some MNKD put options can limit your risk but if you win, it can be substantial. But be clear, this is purely speculative, although the chance of win is high, in my mind.

Take the advantage of weakening China's economy

There has been bad news no-stop for China in the past few weeks: weakening RMB (Yuan),  plunging of CSI, trade deficit which was unheard of in the past 10 years, first ever bond default from a solar company…… All of the evidence points toward one direction: the world economic engine is slowing down. I’m sure China is experiencing some rather serious difficulty in its economy. But as always the market is overreacting to the situation as if the world were close to its end. Well, actually this overreaction is creating a fantastic opportunity for those who have a long-term investment horizon. The world has a habit of not ending and China will come back. You can be sure for it!  If you believe so, you should buy the mining companies producing raw materials important for China.  One of the best is probably Southern Co (SO). It is a very stable utility/mining company with a 40+ years history of paying dividends non-stop. Thanks to the recent correction of the stock price, SO is currently paying a dividend of 5%. Buying, holding and reinvesting dividends will make you very rich over a long period of time with such companies. Take the opportunity to get some shares before it is too late.

Macro: The Bottom Line (3/10/2014)

What's up with the euro?

 

If you've been following the currency markets lately, you may have noticed something very odd: the euro just keeps marching higher. That's right, the euro - the same currency whose very existence was the subject of debate just two years ago - is now testing the 1.40 mark vs. USD, a level it has not seen since 2011. How could this be? Why does the euro continue to march higher despite the ongoing economic malaise in the 18-member currency bloc (not to mention the ongoing tensions over Ukraine)? And what about our repeated calls for a euro correction?

First, let us provide some background as to the recent euro strength. 

 

For nearly half a year now, the Eurozone economy has been sending mixed signals. On the positive side, the region emerged from recession last summer, and manufacturer confidence (using PMI indicators as a proxy) has dramatically improved. However, belying the upturn in growth and confidence was a dramatic slide in the region's inflation rate, kindling fears of deflation. Any deflationary environment would be a threat to the Euro region's nascent recovery, as consumers and businesses alike would have an incentive to put off purchases and investments until later. A prolonged, Japan-style stagnation seemed like a real possibility.

 

Faced with the threat of deflation, a central bank's usual course of action would be to loosen credit conditions - through a combination of rate cuts, asset purchases, or direct lending facilities to banks. Or in plain English: pump more money into the system. For some time now, a non-trivial number of economists and market commentators - including Red Bull - have called for the European Central Bank to do just that. We, like many others, believed it would be downright foolish to allow ultra-low inflation to threaten the green shoots of recovery. 

The ECB doesn't seem to agree. Rather, the most they've done is sporadic verbal jawboning about the need to consider additional measures. They're deploying the pea shooter at a time when a bazooka is needed. And at last Thursday's ECB board meeting, the bank's president, Mario Draghi, even suggested that the risk of deflation has receded (even though the annual inflation rate, at 0.8 percent, is less than half of the 2 percent level that the ECB itself defines as price stability). Whether or not Draghi knows something that we don't, we can't tell. But the ECB's continued inaction has been enough to drive the euro back to two-and-a-half year highs.

So what about our bearish view on the euro? We'll be the first to admit that our call for a correction in the EUR has been premature. We, like many others, have underestimated the degree to which the FX markets have been willing to play along with the ECB's game. But our central thesis remains intact: with unemployment across the euro region stuck at 12 percent, small- and medium enterprises in Italy and Spain still largely unable to tap cheaper credit, and growth levels still nowhere near escape velocity, the ECB cannot remain in a state of denial forever. At some point, another dose of monetary stimulus will be needed, if the Eurozone is to have a reasonable chance of returning to economic normalcy. So while we're not calling for investors to unleash their shorts on the euro, chasing it higher will also likely do more harm than good. The bottom line: don't use the recent euro currency strength as a vote of confidence in the Eurozone economy just yet.

Catch the hot trend on e-cigarettes

Cigarette companies are a great long-term investment and it may bring you significant income when you need it, as long as you have patience and principle. I talked about the two biggest cigarette companies (MO and PM) a few months ago. Today, I highly recommend another one, Lorillard (LO).

The traditional rationale for investing cigarette stocks is the same, as for LO. Lorillard holds a portfolio of famous cigarette brands such as Newport with a large market share. But one thing special for Lorillard is that is owns Blu, the leading electronic cigarette brand with 48% of the domestic market share as of now. While still a small portion of Lorillard's total revenue, Blu grew revenues 39% in the fourth quarter. This is still early but I think this may be a very big trend. Per some studies' results, e-cigarettes have less harmful effects than the traditional cigarettes. Apparently more and more people will smoke with e-cigarettes. Of course there will be fierce competition moving forward when more and more people realize its commercial potential but with its leading position, LO will benefit most on top of its already mature business with traditional cigarettes.

Technically, LO is also presenting its strength. As you can see below, in the past years, the LO chart is showing a step-wise uptrend. After it breaks out the previous resistance, it tends to stay and move further up. LO just broke out again from its prior level around $52. Of course it is yet to see if this breakout can stay as it was a response to a potential merger that has not been confirmed. Regardless, I'm confident that LO will continue to move up gradually and it is paying a big dividend (5%). Any weakness will be a great entry point for LO.

Diversify your saving in Chinese Yuan

We went into a great deal of details on the ongoing weakness of the Chinese Yuan (RMB) in this week's macro bottom line, but our position is clear: this is only a short-term phenomenon. In the long run, RMB will continue its super uptrend against the US$. The fundamentals will just not allow it to weaken for too long. If you also share with our views, then this is a good opportunity to diversify your savings into RMB. If you have some money sitting idle and you only want to keep it away from stocks or other expenditure, then you may consider to convert part of this portion of your saving into RMB. You of course can simply exchange it to RMB and in the US you may do this at EverBank via RMB CD.  But you have to lock up your money for some time and you earn almost nothing from the CD given the currently extremely low interest rate. I have a much better idea for you: buy PowerShares Chinese Yuan Dim Sum Bond (DSUM). DSUM is an ETF that tracks the Citi Custom Dim Sum (Offshore CNY) Bond Index. Such Dim Sum bonds are RMB-denominated and generally are issued in Hong Kong. The ETF corresponds very well against the RMB exchange rate: it goes up or down with RMB. The beauty of this fund is that it also pays you with a current yield of over 3%. You can buy and sell it just like a stock and you get paid for the time you hold it. If you believe RMB will go up in the long term, then DSUM will also go along with it. While you should not expect it to go up 100% within a few years, as this is a currency-based bond fund, I won't be surprised to see it go up 30-50% in the next few years. As a diversification saving strategy, this will be a great result I can expect. I don't know if the absolute bottom has been in for RMB but I think it is very close to it.

Macro: The Bottom Line (3/3/2014)

 

The Chinese yuan: an engineered currency depreciation?

 

In this week's edition of Macro: The Bottom Line, we focus on the curious slide in the Chinese yuan (RMB) over the past couple of weeks. Since the start of February, RMB has weakened over 1.6% versus USD (from 6.05/USD to 6.14/USD on Feb 28). This sounds like a mere drizzle compared what's been happening to other emerging market currencies lately. But for a tightly managed currency like the yuan, it's caused quite a stir. In fact, what makes it all the more bizarre is that this may well be an officially engineered depreciation.

 

The RMB depreciated sharply vs. USD in February 

What do we mean? To start off, we'll give a quick refresher of China's currency regime. Prior to July 2005, China maintained a hard peg for the RMB versus USD (at a rate of 8.2/USD). The primary goal was to keep the currency artificially weak, to protect the country's export-driven economy. Since July 2005, however, China relaxed its FX regime from a hard peg to a "managed float," in which the currency was allowed to "float," though only within pre-specified limits. These limits took the form of a daily trading band, beyond which the PBOC, China's central bank, would intervene to prevent any further moves. Currently, the trading band stands at +/-1% around a daily "reference rate" set by the PBOC, China's central bank.

 

Despite tight management of the exchange rate, the new FX regime has allowed fundamentals to be (slowly but surely) priced in. With the exception of an interlude following the 2008-2009 financial crisis, the PBOC has allowed the RMB to crawl higher, reflecting the strong flow of export dollars and foreign direct investment (FDI) into China. With this kind of a track record, it's easy to see why a prevailing view began to engrain itself into investors' mindsets: that the RMB had only one way to go - up!

Since China loosened its hard peg in 2005, the RMB has mostly gone in one direction: stronger

Until this February, that is. You see, China is now a much different country than it was in 2005. It is no longer the world's sixth largest economy; it is the world's second largest. With the growing economic clout comes ever-growing trade and financial linkages with the rest of the world, and the liberalization of China's capital markets (including its currency) cannot be put off forever. In line with this thinking, the PBOC is now preparing to widen the RMB's daily trading band beyond the current 1%, taking another step toward a fully free-floating regime. But there's a problem: if everyone is convinced that the RMB can only go up, what's to prevent the currency from shooting through the roof under a less restrictive currency regime, thereby crippling the country's still-crucial export base?

That's where last month's interventions came in. The PBOC was well aware of how entrenched the RMB bulls were. They came to the realization that the only way to flush them out of their positions, was to administer them a good dose of volatility. The markets had to be convinced that being long RMB was no free lunch, that it was possible to lose money on the trade.

To the extent that this got markets jittery, the PBOC certainly did its job.

 

But what does this mean for the RMB over the longer term? Is the decade-long bull market in the yuan coming to an end? We at Red Bull think not. Rather, the near-term tumble in RMB may provide a good entry point to get exposure to the yuan.

The PBOC can stir the FX markets all it likes. But it cannot fully vanquish the forces of supply and demand. First, China continues to run very large current account surpluses, unlike most other major economies, emerging or developed. Think of this as the difference between how much income China is receiving from the rest of the world, versus how much income China is sending abroad. With the balance in surplus, China is essentially raking in much more income from selling its goods/services to abroad than it's paying to purchase goods/services from abroad.

China's current account surpluses, while off from their 2007 peaks, still bring in $200bn of foreign currency a year 

 

Second, China remains a top destination for foreign investors, with foreign capital - including the all important foreign direct investment - continuing to flow into the country in force. For all the turbulence in the emerging markets, China's huge consumer market, relative stability, and well-stocked financial war chest (including $3.5 trillion of foreign reserves) are too juicy to ignore. In 2013 alone, net capital and financial inflows into the country totaled nearly $250bn.

All in all, that's a lot of foreign currency entering the country. Or in other words, a lot of ongoing demand for RMB.

 

We'll be writing more on the topic going forward, and stay tuned for some recommendations on how you can take advantage of this rare dip in the RMB.

 

 An update on Ukraine: We cannot close this week's Macro: The Bottom Line without a word on Ukraine. You might recall that in last week's post, we largely downplayed the implications of the crisis in the Eastern European country. Well, events have taken an unexpected turn, with Russian troops marching into the country's Crimean peninsula, under the pretext of defending Ukraine's Russian-speaking population. As you might expect, rhetoric from Moscow, Kiev, Brussels, and Washington have taken on a much more confrontational tone. Outright war has suddenly become a plausibility (though one we still consider very remote).

So far, the specter of a conflict on Europe's doorstep has sent oil prices above $100/barrel, and the "safe" currencies - the dollar, the yen, and the Swiss franc - have started to firm versus their counterparts. Beyond this, we do not anticipate a full-blown market crisis, both for the reasons we outlined last week (Ukraine's limited economic significance and Russia's reduced "oil leverage"), and due to the unattractive risk-reward tradeoff for the West to actually get involved militarily. But the developments in Ukraine remain a wild card, and we'll continue to monitor the situation.

Cameco hit one year high

Following the Fukushima nuclear disaster in Japan, Cameco (CCJ), the world largest uranium producer, has been struggling for 2 years. As I discussed in Nov 2013, I though uranium had touched its bottom and a light at the end of the tunnel could be seen for Cameco.

Last Tuesday, Japan announced details of the new Basic Energy Plan, which designated atomic energy as an integral part in meeting the country’s long-term electricity needs. After 2 years' struggling with high costs to meet its power need based on expensive imported natural gas, Japan has to abandon its previous decision to phase out the country’s nuclear reactors. Now the energy plan outlines steps to restart reactors that were closed following the Fukushima Daiichi nuclear plant disaster in 2011. This is extremely good news for uranium companies.

As you can see below, CCJ has basically moved around within a box in the past 2 years after its plunge. Now it has just jumped out of the box top for the past 12 months (around $22) and it is quickly approaching the 2nd box's top. Watch for the price of $25. If it can firmly break through this resistance level, which I believe so, CCJ will truly start its bull run with the sky as its top. This is another severely beaten down sector that no one wanted. But if it wakes up and starts to run, no one can stop it and everyone will chase it.

If you are really a risk taker, you may also look at a tine uranium exploration company, U3O8 Corp. (UWEFF). In a super bull run, penny stocks may skyrocket ten times or more. As you can see, UWEFF used to be at the $4 level and it is now trading at $0.15. You may make a lot of money if you bet right but you may also lose everything you put in. So be cautious about your position size if you want to bet this one.