Treasury's mini-correction is likely over

Two weeks ago, I predicted the US Treasury bonds would come down to release its overbought froth. Here is what I said: ...the rapid up move of the US bonds in the past 2 weeks was a bit too fast too soon and I think in the very short term it is a bit parabolic and needs to come down first. The ETF for 20+ Treasury bonds (TLT) has jumped to $143 a couple of days ago. I think very likely it will go down to test its 50 DMA around $135 in the next few days......  But please note, this is just for a very short term trade aiming for a quick profit. Longer term, TBT will likely go much down with up moving TLT. Sure enough, TLT did come down and TBT went up as expected. While TLT did not test 135 exactly, it touched 138 and rebounded. I think the mini-correction for TLT may be likely over per its price actions. I bet for this correction with both naked puts and bullish calls for TBT, a double winning for this move. I have closed my TBT positions now. If you bet for the same thing, it is time to take your profits. Here is what I think TLT will move going forward. It may come down a bit again to test its recent low around 138 to create a positive divergence with MACD. If so, it is a very bullish move and will go up again on a sustained fashion. For this direction, I may bet with UBT to ride its next leg up. Happy trading!

A victim of its own success

The Wall Street is a weird animal that often does something hard to understand. It can blow a stock price to the moon simply based on a fantasy idea or a big plan, even if the company is bleeding all the way along without madding any money. Tesla is one typical example. Then it can punish a well-run money-making and hugely profitable company by cutting its stock price to the bone. Gilead (GILD) a good example we are seeing right now.

 

Gilead is one of the most successful biotech companies in history and is extremely profitable. It used to be considered as a HIV company as its main focus few years back was about HIV products. About 2 years ago, it totally changed its fame when it became the first company marketing the extremely effective hepatitis C drug, Sovaldi. This drug could virtually cure the life-threatening HCV infection. The huge demand immediately brought a windfall to Gilead and in the first quarter of Sovaldi’s debut, it already generated billions of sales for Gilead. I don’t think any company with any drug has ever achieved such a commercial success before! Well, huge success will always create huge expectation and euphoric chasers, which by itself is a double edged sword. Unless the company can maintain this kind of heightened momentum, it will disappoint the Street sooner or later. Gilead is exactly following this path and becoming a victim of its own success at the moment!

 

With fierce competition emerging in the HCV market with more new approved drugs available now, there is no way Gilead can still keep its HCV sales growth as expected by the Street and the latest “disappointing” quarterly earnings seem like a total surprise to its investors. They dumped the stock as if there were no future anymore for Gilead. What a typical stupid overreaction we have been seeing again and again. As a contrarian investor, I’m happily waiting for this moment to buy a good discounted stock I like. Gilead is still controlling 80-90% of the HCV market and over 50% for HIV. It is a hugely profitable company you rarely see in others: profit margin at 50.5% and return on equity at 99%. It is a cash cow producing nearly $18 billion in free cash flow and  has a huge cash pile with over $20 billion in hand. Around $80, it is extremely cheap by any means with a PE around 7. Because it has so much money, it has started to pay dividends since last year with a respectful yield at 2.3% at the moment. Moving forward, Gilead has good a pipeline for new drugs including hepatitis B virus (HBV) and NASH (non-alcoholic steatohepatitis). With a rich cash amount in hand, Gilead is openly talking about potential sizeable M&As to enrich its pipeline. One exciting area I’m sure Gilead is looking for is the hot immune-oncology horizon. It may use its cash to jumpstart in this new area to ride the unstoppable uptrend. Aside from its fundamentals, its technical setup is also quite strong for its next leg up. Actually from the technical perspective, this big selloff is necessary to create a strong positive divergence with MACD to support its bottoming process and start a new uptrend. I think $80-ish is likely the bottom of the one year correction for Gilead and I’m quite happy to establish a position for it!

Free cash in the corner?

Jim Rogers is one of the best living traders in the world. He has famously said how he made his fortunate: "I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up.” Of course it is easier said than done and you rarely see this kind of free cash lying at the corner. But I’m seeing it now.

 

BIND Therapeutics (BIND) is a biotechnology company developing novel targeted therapeutics, primarily for the treatment of cancer. BIND’S product candidates are based on proprietary polymeric nanoparticles called ACCURINS®, which are engineered to target specific cells and tissues in the body at sites of disease. This looks like a futuristic technology, if successful, could be a great tool to aid cancer drug development. But a fancy idea does not guarantee the business success. This is exactly what has happened to BIND. It has run out of money and has recently filed for bankruptcy protection. In the past several months, a few companies have bided to buy the company. Today, it is announced that  Pfizer Inc. won bankruptcy-court approval to buy the assets of Bind for a final price of $40 million. Per the company lawyer, they will use the money to fully pay all the creditor for the outstanding debt and after that they will still  have about $22.5 million to be divided among Bind shareholders. In other words,  the deal enables Bind to pay its bills and will allow shareholders to walk away with some cash. Based on the amount of current outstanding shares in the market, the shareholders should get approximately $1.10 for each share they hold. The interesting thing is BIND is trading around $0.9 as I’m writing, a 20% discount that to me is almost like free money. It is said the deal will be closed on Monday and I’m not sure if you will still be able to buy BIND anymore next week. If anyone is interested in the “free money”, probably tomorrow is the last chance to go to pick it up!

 

Be aware, everything I’m talking about here is based on my understanding and I could be wrong.

A free cash trade?

Before I’m talking about today’s trade, just a few words on my call about Yahoo a few months ago. As I said, either Yahoo was to be sold orthe CEO Marissa Mayer had to go. Looks like Mayer heard my call and decided to sell Yahoo finally. It is official now that Yahoo will be sold to Verizon at a price tag of $4.8 Billion. I just feel really sorry for Yahoo, once a glory Internet story worth over $100 Billion at its top and now on sale for 95% less. While I’m correct for this call, it is nothing exciting in terms of the deal. I believe Yahoo was around $30 when I made the call and now it is around $39. Not bad for a few months but I don’t think you can expect anything more from here. If you got in then, it is better to take the profit now to move on.

 

We may have a short-term trade to consider now. The company I’m talking about is a clinical stage biopharmaceutical company developing novel antibiotics to treat life-threatening multidrug-resistant (MDR) infections. It is Tetraphase (TTPH) that has just completed a phase III study for its leading compound, IV eravacycline. But unfortunately it was notified by the FDA back in May that clinical data from an additional positive phase 3 trial will be needed to support an NDA submission. As such TTPH plans to conduct another phase 3 trial that won’t be complete until the fourth quarter of 2017 or later. Its price dropped by 20% due to the news to below $4. Since then, TTPH appears to have stabilized and is now trading just above $4 as I’m writing. I think TTPH has likely found its bottom at this level and technically is showing a higher highs and higher lows in the past few months. The thing most interesting me is the fact that this is a company with no debt but has $5 per share cash in hands. As such, I really don’t think there is much downside for TTPH but the technicals support for a quick move to the upside. I’m not sure I will hold this stock for long-term but I’m quite interested to trade it on the short-term basis.

How high gold can go?

Lately I have warned that gold/silver appears to be a bit in a parabolic move and is due for a short-term sizable correction. We may be seeing it now. One thing I learnt over years is not to bet against the smart money. As I said, the smart money, i.e. the commercial traders in this case, are the ones knowing inside and out of the rhythms of the precious metal business. They usually long when they are at the bottom and short when at the top. For a few months now, the smart money as seen in the COT report has heavily shorted gold and silver, reaching a magnitude not seen for years. Not a good time to start buying at this point without proper downside protection. I hope you didn’t.

 

Having said that, I’m a super bull for the precious metals for long-term. I have never lost my faith in it even after a 50% plunge in the past few years. I know it is just a matter of time the glory time will come back. I think it did since the start of this year and will continue for years to come. You may see my reasoning here. So the question is how high gold can go? No one knows for sure of course but we may look at the history to try to get a hint. Below is the chart I recently saw with a great interest. It plots the current gold percentage price action in red since 2000 over the historic time in 1970s, the last gigantic bull run for gold. Can you tell much a difference between the two? Almost identical in the relative sense. We often say history may not repeat itself but often rhymes. If history is any indicator and by applying the percentage gain from the last bull run for the same time period, it implies gold can surge to as high as $7000 in the next 3-4 years. You can see more details of the analysis here.

 

1970s: US$35 in 1971 to US$180 in 1974 (414% gain)

Now: US$280 in 2000 to US$1,888 in August of 2011 (574% gain)

1970s: Correction 1974-76 US$197 to US$110 (44% loss)

Now: Correction 2011-15 US$1,888 to US$1,056 (44% loss)

Yen will go down the hell

Slow or no growth economically for nearly 30 years with a fast aging population and the debt to GPT ratio standing at 250% is not something you will usually relate to a safe haven currency, right? But it is indeed the case when you are talking about the Japanese Yen. Yen has been widely accepted as a safe haven for decades and it does not appear it will end soon. What’s the reason is totally beyond my small brain and I have no interest to debate with anyone on this. My interest from the trading perspective is where Yen will go from here. We have gone through a lot of turmoil in the past year, which has strengthened Yen again and again as the safe haven currency. Yen against US$ has appreciated about 20% over the year and it stands at 105 at the moment. But I think this is very likely going to change.


You see, Japan has virtually no growth with internal consumption; on the contrary, it has been experiencing probably the longest period of deflation, which is almost certainly continuing for many more years. In other words, Japan is a pure export-oriented economy that it must keep in order to survive. But the safe haven status of Yen that becomes stronger and stronger is killing them. They have to do something to soften the Yen and this is what Abe is going to do for sure. The recent overwhelming re-election victory of Abe’s ruling party with a resounding two-thirds majority in the upper house has virtually given Abe all the power to do what he wants to do. Among many ambitions he has, one thing is almost certainly coming from him is to depreciate Yen. Otherwise the Japanese economy will collapse and Abe will not be able to keep his power for long. Abe has tried QEs for many years already without much success. Who knows what he is going to do but he has hinted that he will do something substantial. One possibility we may think of is from his recent meeting with the famous formal Fed chairman, the “helicopter Ben”. Bernanke is notorious for promoting the idea of so-called “Helicopter Money”, that is “Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community.” And indeed he is seriously thinking about this as the last resort of Fed. It seems this may likely what Benrnanke was proposing to Abe to simply print out money and distribute directly to its citizen in order to stimulate its economy. I of course don’t know if this is what Abe will do or something else but I’m convinced that he is going to take some very drastic step to devalue his Yen. It appears the market has already sensed that per the price action of the exchange rate of Yen against US$. If I’m correct, Yen will go down the hell at least in the near term and shorting Yen will likely be very profitable! The simplest way to do so is via the inverse ETF, YCS. As you can see, YCS appears to have touched the bottom a couple of weeks ago and is moving higher now. It is just breaking out its one year downward trend line supported by the positive MACD, which is quite bullish. I think much more to gain for YCS in the next few months.

You may likely get two for one from this titanic giant

If you don’t know this company, you must be an ignorant about the pharmaceutical industry. This is the largest pharma company in the world and has been constantly in the news for years. The most recent and famous one was the failure of its trying to do the largest buyout of another massive pharm and move its tax headquarters to Ireland. It failed because this move was so big and influential that it caught up the attention from the Obama administration, which in turn issued new rules to kill the deal. Of course I’m talking about Pfizer (PFE).

 

Pfizer has got this gigantic size not because of its internal growth but rather through dozens of acquisitions over years.  The most famous one is probably the buyout of Warner-Lambert Pharmaceutical, from which it got the cholesterol lowing drug Lipitor,  the world's best-selling drug of all time with more than US$125 billion in total sales over approximately 14.5 years (the peak annual sales over $12 Billion!). Unfortunately Pfizer could not continue with this momentum and has been largely lagging behind for almost 2 decades till now. After reaching its all time high around $45 back in 2000, it got crashed to as low as $17 during the financial crisis in 2009. It has quietly recovered most of its loss since then but I bet not many people are interested in it anymore. It is almost like a company of the past without much future. But I think a new era may be coming soon for Pfizer. While it seems there is not much excitement left for Pfizer, under the surface there are something quite interesting ongoing. Let me point out a few things here:

• First of all, PFE is quite cheap relatively speaking, at a forward PE only at 13. With its gigantic portfolio with hundreds of drugs on the market, it is a cash cow, churning out free cash nonstop. It has a reliable high dividend yield around 3.5% at the moment. At the zero interest environment, you can virtually treat Pfizer as a bank to produce interest income for you.
• Beyond that, Pfizer is doing something smart lately to beef up its future earning power. For one, it recently acquired  a company called Hospira, which was famous for its enviable basket of ingectables. But more than that is Hospira’s strength in biosimilars. Biosimilars are basically the generic (off-patent) medicinal drugs of biotech products and they are estimated to be a $35 billion market in the next few years . Biotech drugs are hugely profitable and a high margin business, but due to the technical complexities in the manufacturing process, not many companies can replicate such generic products. Pfizer is one of them and with Hospira on board, it will be positioned very well in this new hot money making area moving forward. Towards this end,  it has just announced that it will build a $350 million facility in Hangzhou China to manufacture biosimilars. I guess I don’t need to emphasize what will be the biosimilar market size in China where the brand name drug prices are skyrocketing high. This is indeed smart move by Pfizer.
• Pfizer got hit very hard due to the loss of its patent in 2011 of the bestselling drug, Liptor. But it is testing a new follow up drug, bococizumab, currently in the phase 3 trials. If successful, this new generation cholesterol-lowering drug will have a huge advantage over Liptor in the sense that it can not only reduce  lipids as effectively as Liptor, it can also prevent cardiovascular problems in patients, a kind of one stone for two birds drug. I think this will turn out to be potentially another all time best-selling drug if successful.
• Now in the hottest immune-oncology area that Pfizer missed the boat initially. But it is catching up and has some promising drugs in late phase clinical trials as well. I think it will have something promising coming out in the near future.

So you may ask why I’m talking about “getting two for one” in the title? Well, Pfizer is undergoing significant reorganizations internally by grouping its businesses into two major parts: one consisting of established medicines and another with high-growth innovative products and pipelines. It has also sold non-essential assets like nutritional and animal health business. By doing so, Pfizer will likely be splitting into two companies in the near future, possibly towards the end of the year. The Street loves the game of splitting of a company as it means a more focused company doing what they are better to do. If this deal comes true as I’m expecting, the PFE stock holders will get two stock shares from each Pfizer share: one with a company for massively profitable established-products and another one with the potential of explosive growth. Of course, don’t expect an immediate jump of the total value of your shares. Initially it will be more or less the same between the value of the Pfizer stocks pre-split vs the combined value of the 2 stocks post-split. But historically the split is usually very good and profitable for the stocks of interest down the road. I got my first hand experience with the tobacco company, Altria  (MO) years ago. From MO, I got free shares of the child company Phillip Morris (PM) in 2008. As of now, MO has not only totally recovered from the discount due to the split, but has gained 2 times over its pre-split price. PM has also more than doubled for me since I got it for free. On top of that, I have got high dividend incomes for years from both companies. I’m more than happy by holding MO through its split and continue to hold both for my retirement portfolio. I think we may see something similar for Pfizer if it indeed splits to two. If you are interested in value stocks for long term, don’t miss this potentially lucrative opportunity!

You got another chance for JUNO

Juno has been going through a roller coaster in the past week to say the least: got crashed overnight by 30%, rebounded close to 30% within a week and then got sold off again as of now. Sure there are a lot of nervousness out there and for those who got it at a higher price were eager to sell when it bounced back and those who got in at crash wanted to lock in the profit. Very understandable and typical behaviors from the speculators.  You cannot blame them! For me, I’m certainly among those for long term and the short term gyration of the prices are only creating more opportunities for accumulating more shares. I happened to see some interesting comments from the Barclays analyst,  Jonathan Eckard:  “We are not aware of clinical hold ever being lifted in less than one week, especially when there are patient deaths involved,”  “We believe this reflects both the FDA's familiarity and view of CAR-T therapies and the dire need of the patients these products are being tested in." Eckard added “this could be considerable when looking forward to the product’s review process, while we still see many boxes that will need to be checked before ultimate approval.” Is he stealing my thoughts?

Here is another report on the news: The FDA’s prompt, go-ahead action suggests that the agency isn’t particularly concerned that this could be a safety issue beyond the combo with fludarabine. The trial will continue, as it was previously, with a preconditioning regimen consisting solely of another chemotherapy drug, cyclophosphamide.

 As with any new technologies, you can bet there are a lot of doubts and naysayers out there about the validity and their longevity. But just remember, great opportunities are always born with doubts and disbelief. If everything is well established, you think you can get a good price anymore? I guess everyone would agree Apple is a great company now but how many of you know Apple has gone through turmoil 7 times close to bankruptcy? Big money is not made when iPhone/iPad became popular products but when Steve Jobs was kicked out from Apple years ago. That’s how a great opportunity was created with a frightening crisis. So investment, especially speculative investment is not looking for certainty but for a reasonable possibility of success. I’m convinced we have one for Juno. If it were not, you would not have seen Celgene spending billions for a deal with Juno. Now GE is also coming on board to build a $1 billion business offering vital manufacturing tools for a coming wave of cell therapies. Why so? Because they estimate sales of cell therapies will reach $10 billion by 2020 and $30 billion by 2030!

Having said that and regardless how much I believe in CAR-T, it is still a speculation with substantial risk. As such, I don’t want to simply buy and hold but structure my positions in such a way that my downside risk is minimized, in case I’m totally wrong. As I said, I bought stocks outright after hours when it tanked 30% and I bought call options the next day when it continued to slid down. So I took the opportunity to sell my stocks with good profit when it jumped high on Wed and in turn I used my profit to buy more calls as free long-term positions. For my calls, I partially sold covered calls to minimize my risk but it won’t totally cap my potential gains. Considering this won’t be a smooth journey but likely a very bumpy road, one may also consider to set up a straddle by buying calls and puts at the same time. If you consider this strategy, it is important to go for the long-term calls/puts. With sufficient time, I think Juno calls may likely gain several times from your initial invested money. This is what I’m looking for!

An unprecedented move, a clear signal

A fast move, a quick profit! That's what happens to my Juno call. While I was very convinced that the Juno clinical hold would be lifted soon, I was only thinking about a 1-2 month time period. I have never thought about a lift in less than a week. This is really an unprecedented fast action from the FDA as far as I know. If you bought Juno a few days ago due to my call, I'm happy for you. But don't thank me; rather you should thank yourself for taking the contrarian action against the herd and more importantly your own luck!


Given this unprecedented quick action by the FDA, I'm thinking the FDA is sending a clear signal behind the decision. Believe or not, while the FDA will never tell in public what is the true reason deeply embedded in their action, you may decipher their thinking from their actions. I have done this in the past posted here as well. Four years ago in about 2 weeks prior to the FDA decision regarding the submission of ipilimumab (or more famously Yervoy), I openly predicted that Ipi would be approved. One important reason was from the FDA action to cancel the scheduled ODAC, a move very positive per my understanding. I got it right and made some quick money as well. So let me try to decipher again what the FDA is telling us. For me it is a very clear signal that the FDA is very interested in the CAR-T cell therapy and believes its clinical benefit very much. Think about it, if the FDA had a lot of doubt about its efficacy, would they simply lift the clinical hold without spending more time to carefully evaluate the fatal safety concern and the risk minimization measures JUNO is taking? Legally they have at least 30 days to review and can ask for an extension if needed. Such a quick action is nothing different from a statement that they believe in the clinical benefit from CAR-T and don't want a manageable safety concern to slow down the development process for it. If I can further make a bold prediction, I think the FDA will work with the companies for CAR-T therapies to make the development and submission/approval process as smooth as possible, since they want to see it commercialized as early as possible for the patients' benefit. Therefore I personally believe Juno has a good chance to still stay ahead of its competitors to be the first company to market the therapy, if they can manage to complete their studies as scheduled.


Now the question is what to do with the profitable positions. For those who got in below $30 and want to take the quick profit tomorrow, there is nothing wrong with that. After all, it all depends on one's initial aim: short-term trading vs long-term speculation. Personally I bought more when it came down further the next day. But I will hold my positions for long term since I very much believe the prospect of this technology and now given the clear signal from the FDA, I have more faith in it. Of course, we may still see some up and down days along the way, especially some unexpected surprises emerging. But as long as there is no evidence that may refute its clinical benefit, I will stay on the course to its end.

US Treasury is in a parabolic move

The bond king, Bill Gross, is one of the smartest guys in the world most famous for his enormous successful track record in bond investment over 4 decades. He has called the end of the 30 years supper bull run of government bonds a couple of years ago. He also called a higher interest rate moving forward. I obviously do not dare to argue with such a smart guy about bond investment and totally agree with him that putting money into the government bonds for long-term is almost like a suicide. Sooner or later, the interest rate for sure will go up, which will kill the long-term bond investment. But I disagreed with his call in terms of the timing, especially I didn’t believe the US interest rate could go up immediately. I made the call over 2 years ago when the Treasury rate moved up quite a bit at the time there was much expectation that the Fed rate would go up(with declining Treasury bonds). Here is what I said: While in the long run, the Treasury bonds will definitely go further down, a lot more down, the question is: will it simply go down from here without looking back? I highly doubt…… I think it is highly likely that the Treasury bonds will bounce back strongly in the near term and the interest rate will come down from the moon soon. If this is indeed the case, then a logic speculation is to long the Treasury bond.  It turned out I have been right till now. Following the Brexit, the situation has become even worse and the Treasury rate has plunged to all time low (below 1.4%) with Treasury itself moving further up. Believe or not, I think the Treasury may further go down from there in the longer term due to 2 major reasons: for one, I don’t believe the US economy, although seemingly in a much better shape than other countries around the world, is strong enough for a high interest rate. If so, the much stronger US$ plus the higher business costs will for sure significantly drag down the US economy; secondly, when more and more countries are moving towards negative interest rates, the US bonds still with positive interest rate, although historically low, are becoming more and more attractive for foreign bond investors. The demand for the US government bonds may likely further increase that will accordingly further push down the bond yields. Not to mention the potential recession down the road which I believe is becoming more and more likely. If that happens, look for more QEs from the Fed. We may eventually also have to move to a negative interest rate environment. Sounds crazy for now but it is another topic for future.

 

Having said that, the rapid up move of the US bonds in the past 2 weeks was a bit too fast too soon and I think in the very short term it is a bit parabolic and needs to come down first. The ETF for 20+ Treasury bonds (TLT) has jumped to $143 a couple of days ago. I think very likely it will go down to test its 50 DMA around $135 in the next few days. The best bet for this move is to buy the leveraged inverse ETF, TBT. In anticipating this move, I bought TBT last Friday and it is already moving in the right direction. I think there are more gains in the days ahead. But please note, this is just for a very short term trade aiming for a quick profit. Longer term, TBT will likely go much down with up moving TLT.

Recession becomes more likely now

I bet not many people took it seriously over what I was saying early this year that a recession could occur within 2 years in the US. Indeed who should believe me? After all I’m not an economist and knowing very little about any fancy economic theories. But I know a little about the markets with various leading indicators that could help me “foresee” what may be coming months ahead. It is interesting to note that the market often seems very irregular and chaotic over short term, pretty much driven by the extremely volatile and daily-changing emotions of all the traders involved, it is actually a very reliable and great forecaster over a longer term period. As presented in that blog, the market is forecasting a possible recession in the near future. Now this view appears to become more of a front page topic in the financial circle. Here is the headline on July 6 in Fortune: Deutsche Bank Says the US Is Likely Headed for a Recession.  According to the DB analyst, “the US has a 60% of chance entering a recession in the next 12 months, the highest probability since the Great Recession.” What a coincidence! I’m even thinking this guy may be reading my blogs and simply copying my idea (Haha…..). Now seriously, the financial world has become more fragile following the Brexit and the downside risk becomes increasingly high, although on the surface the US market seems very resilient and is poised to break out to its all time high (for S&P 500). I don’t mean it is not possible but I’d be very cautious to chase high at this level. To give you 3 more indicators suggesting the equity market may likely be heading much lower in the months ahead:

• The 10 year Treasury yield has reached all time low below 1.4%. This is really not a good sign as it strongly indicates major investors are really scared about the near future and want to hide for safety
• While the interest rates become increasingly low, the US dollar becomes stronger. This is counter intuitive as usually US$ should be weaker with lower rates. It again suggests people are running into the safe heaven
• Gold goes up together with stronger US$. Again a counter intuitive move but further suggesting safety is the leading place for major market participants

 

These 3 indicators appearing at the same time are not a good sign for the equity market and are likely also signaling some sizable downside move is approaching.  This is not a time to be hero. I’m very cautious in handling my own investment and trying to use a holistic approach to manage the potential risks:

• For my 401K money where not many choices are available, I simply move 90% of the money into the Treasury/bond funds or money market funds. The safety is more important for me at the moment.
• Outside my retirement accounts, I hold a lot of precious metal positions as I believe gold/silver has started its next bull run. They will also be one of my major hedges against the market downside risk. Please note, while I’m super bullish about gold and silver for years from the long-term perspective, I’m very cautious about its near term euphoria. It is not the time to chase up. I still believe a sizable correction is in the cards in this sector.
• Over years, I have gradually established a portfolio of quality dividend stocks for the long term dividend reinvestment strategy (DRIP). From time to time, I’m talking about such stocks here as well. I have no worry at all about the fluctuations of such stock prices as the lower prices they are, the better for me eventually in terms of my long-term wealth building. These are the stocks with which I can sleep well at night. However, I do some technical trading on them using covered calls (for overbought) or naked puts (for oversold) when the technical setup is appropriate. This has become an important short term income source for me to speed up my process of building wealth via DRIP.
• I do have quite a few speculative positions betting for some sizable moves from them. But I tend not to hold them outright. Rather I’m trying to use options to hedge as much as possible in case the market tanks or they move in the opposite directions.
• Last but not least, when the market seems very comfortable and complacent with the volatility index near its all time low, buying some inverse funds to hedge for your overall portfolio is not a bad idea. Here you can find more detailed information about such ETFs.

 

I hope this blog can bring your serious attention to the potential marekt risk and help you do something to protect based on your own situation. Regardless how you look, it is not a safe world anymore. Financially the world is becoming increasingly challenging moving forward. You are warned here!!

You don’t often get this kind of opportunities

The biotech company Juno specialized in the hot immunonco therapy, CAR-T technology, plunged 30% last night because a Phase 2 study has been put on hold due to 2 deaths reported . As soon as I saw the news post-marketing, I immediately went in to buy some JUNO around $29 via after-hours trading. I talked about this in WeChat  and immediately I got questions whether this was a wise move. The primary concern was whether the CAR-T technology has shown sufficient evidence of its clinical benefits when only a couple of hundreds of patients being tested and whether the fatality seen is a big problem with this therapy.

 

Let’s first be clear about one thing. As for any investigational drugs, the safety of the drug is critically important as its clinical benefits. No drug can be approved simply by its efficacy. If the risk (R) outweighs the benefit (B), the drug cannot be approved. The key is the ratio or balance of the two! Here is the tricky thing about the R/B ratio. There is a big difference in how to assess the R/B ratio depending on the nature of drugs under study. In general, the tolerability of risk is very low for drugs used for non-life-threatening diseases but the tolerability can be very high for life-saving drugs such as cancer therapy. For most of the drugs, one or a couple of deaths could easily kill the drug but for cancer drugs, deaths are usually not that “a big deal” and you hardly see a promising cancer drug got killed simply due to deaths or safety concerns. I think this can be easily understood. If a patient is facing death already, would he or she care so much whether the drug that could save his/her life may cause serious side effects or even death? Hardly! This can also explain why practising doctors in the US are generally facing a high risk of law suit but the risk is much less for oncologists even so the drugs they use often kill patients prematurely. As such, as long as a cancer drug has shown sufficient efficacy, the FDA will very unlikely kill the drug just because a few deaths were reported. You can be sure that the company will find a way to improve the safety profile and reduce the risk of fatality. Just to give you a real world example what I mean for that. The very first historical immunoonco therapy approved in the world, Yervoy (ipiliumumab for melanoma) is a great drug that can save or prolong life of many patients with this deadly cancer. But if you look at its label for the warnings, you will see Yervoy can cause deadly side effects such as liver failure or colon perforation. Yes, it is a challenge for the drug but certainly not a reason to disapprove it. That’s why I have much less concern about the fate of the CAR-T therapy from JUNO due to the deaths reported. So how about the efficacy part? Well, it is certainly premature to conclude this new therapy has no question about its efficacy. Ultimately JUNO or other companies developing this class of therapy must prove its clinical benefits. But here is the thing. We are not talking about a drug that is still in the lab stage tested only in animals. This therapy has shown quite promising efficacy in patients with advanced leukemia with 80-90% complete response rate for the first year and more sustained response rate around 50% after 2-3 years. Be aware these are the patients who have no available treatment options left and are close to death. You cannot find this kind of response rate if only due to a placebo (fake) effect. To me this is very assuring evidence that the therapy is truly working. Yes, the number of patients tested is quite small but this is under the orphan drug status and as such you don’t need a large number of patients in clinical trials for approval.

 

Taking all together, I think the market is overreacting to the bad news for JUNO as it typically does. It is definitely a setback for JUNO but so far I haven’t seen any concern (from efficacy) that the product may get killed. Boy, you don’t get a chance to buy a stock cheaply when everything goes very well as planned. You only get this rare opportunity when a company is facing some serious but temporary and solvable problems. I think JUNO is just at this status at the moment.  If you want to bet for this new technology, the market offers you a great entry point. JUNO is currently working with the FDA to revise the protocol and restart the study in probably less than 2 months. I suspect its share price will soon recover from its loss and may jump as the clinical hold is lifted, barring unexpected new safety concerns emerge. I bought more today!

Where to park your cash?

The UK Brexit vote has caused a huge gyration of the market and I’m pretty sure more fluctuations of the stock market will be coming in the weeks or even months ahead.  This may deter many people from getting into the stocks and for many people cash is probably a large portion of their liquid holding at the moment. So what are the options people may have for those who have a large chunk of cash in hand sitting on the slide lines? Keeping cash is obviously the most liquid and safest way for the moment but obviously you don’t earn anything. While expectation of earning much from cash holding is certainly naïve in the current zero rate era, there are a few other alternatives from which you may at least get something, better than nothing:

• The safest option is three-month Treasury bonds. They pay only about a 0.25% annual yield, so you won't get much more than if you stuffed your cash under your mattress. BUT these are among the safest investments in the world. So if you won't need your cash for the next three months, at least you know you're protected - and you'll make a little bit of money along the way. This may be especially useful for those who have much more cash than $250,000, an insurance limit by FDIC for cash in the bank.
• EverBank is an online bank, a very safe bank among a few that have not got into the financial crisis during 2008-2009. EverBank's Yield Pledge® Money Market has a great yield that is guaranteed to always be in the top 5% of Competitive Accounts. It's liquid - you can move money six times per month. And because EverBank is a member FDIC, it's insured up to the standard limit of $250,000. For first-time account holders, it currently has a first-year APY that is about 10 times greater than the national average (which is just 0.11%).
• Capital One 360 (Saving Account). This used to be from the ING online bank that was bought by Capital One. Similarly it is a member FDIC and it's insured up to the standard limit of $250,000. It pays 0.75% of interest currently and you can freely move your money around with linked accounts up to 6 times per month. I have used this account for years and like it very much to park my cash there. I hope Capital One will continue with it and keep the good services.
• Lastly with a bit more risk involved is U.S. Global Investors Near-Term Tax Free Fund (NEARX). This mutual fund invests in short-term municipal bonds. Its trailing 12-month yield was 1.47% - and that's tax-free. But keep in mind that both the yield and principal are not guaranteed. The fund is managed to keep price fluctuation to a minimum. Over the past year, the price range has been from a low of $2.23 per share to a high of $2.27.

Another great stock that I want to own

Happy long weekend. Hope all the friends in the US will get a relaxing holiday!

So just a brief idea for a household name, Nike, Inc (NKE). I don’t think I need to say anything more about what is Nike. More than likely, you or your family will have something from Nike. Nike has been around for over half a century and has firmly established its famous brand name for sports-related products. In the past 10 years or so, Nike’s share prices have become particularly loved by investors, which has advanced 6-fold higher. I wish I was clever enough to buy Nike years ago for long-term since Nike is not only a great stock in terms of its share price appreciation, it is also a great dividend growth stock. You know how much I love to own good dividend stocks for retirement. In the past 20 years since it started to pay dividends, it has grown its dividends by an annual compounding rate over 15%. You rarely see this kind of high growth dividend stocks from great companies! In the past 6 months, the euphoria for Nike has faded a bit and its share prices have declined by about 20%. I have been waiting for a sign that its short-term downtrend is ended. I think we have got one now:  Nike was reacting very positively to poor news. A couple of days ago, Nike issued a rather disappointed earning report and overnight its shares declined by 6%. But amazingly, the next trading day totally turned the tide wave in favor of Nike and it had actually closed much higher by about a 2% gain. This kind of price action is quite bullish and its momentum indicator is also a positive uptrend. I think the recent selloffs for Nike have likely been over.   This is the entry point I’d like to take to accumulate Nike shares!