A hidden value stock: Barnes & Noble

Whitney Tilson, the co-founder of the T2 Partners, is a very successful value investor. When he speaks, I listen. A while ago, I saw he was discussing Barnes & Noble (BKS) on CNBC and said that at the price of around $11, it had a potential to go up over 300%. They were long this stock. Here you can see more details about his thoughts.
In a nutshell, BKS has 3 core businesses: 1) the Retail bookstores, which is dying and bleeding  2) the college bookstore business, which is stable, and 3) the Nook eReader platform which sells the devices and digital content. The Nook is really its hidden gem, which has a 25% share of  the eBook market, No 2 behind Amazon. According to Tilson, its book value is around $11, meaning there is little risk to see it go down much further. The market seems to agree with him. It has come down several times in the past year but always bottomed around $10-12. If you have patience with a long-term perspective, BKS may be a good value stock to consider. I haven't got in but am thinking to use the current market correction to get some BKS.

More signs for gold to go up

I have talked about gold or precious metals a lot over the past 2 years. Don't want to repeat what I have already talked. Just a quick note about what I have recently read that two more signs to support why gold will continue to go up, A LOT HIGHER!

One is what central banks worldwide are doing with gold. In the past 20-30 years, central banks had always been the net seller of gold each year. But the situation has changed in the past 2-3 years. Central banks have become the net buyer of gold. In June and July this year, about 150 tons of gold were bought by central banks. The Chinese central bank is probably the most aggressive one for buying gold. Not only all the gold mined in China has all been bought by the central bank (it is illegal to export gold by Chinese miners), substantial amount of additional gold has also been imported each year by the China central bank. It is still rumor but I believe it is credible that the Chinese government is accumulating gold in order to support RMB (the Chinese Yuan) to be the only world currency backed up by gold. If this is true, then RMB may replace the US$ to become the world reserve currency eventually.

The other news very bullish for gold is that Samsung is providing financial support to a mining company, Cluff Gold,  and in return to get gold bullion; See the press release of Cluff Gold:

Cluff Gold plc, the dual AIM/TSX listed West African focused gold mining company, is pleased to announce that it has signed a Memorandum of Understanding for a long term strategic partnership with Samsung C&T Corporation (“Samsung”).  This alliance commences with an unhedged US$20m facility to provide additional funding to Cluff Gold to further the development of its portfolio of assets.

Through this long term partnership Samsung will have access to a reliable supply of gold bullion, underpinned by the Company’s strong operational and management team whilst Cluff Gold will benefit from Samsung’s financial support.  The relationship is expected to result in a significant financing in Cluff Gold’s Baomahun project, subject to the outcome of the feasibility study, together with an ongoing commitment to jointly assess other opportunities in the region.

This is a rather significant development, indicating that major companies cannot stand the continuing depreciation of currencies and are turning to gold as their cash reserve. In other words, companies will more and more treat and accept gold as money. I won't be surprised to see that soon gold and/or silver will be the acceptable currency for business and services between corporations. Think about the implication for gold and silver prices in the long run! But be careful about the very short-term volatility for gold and silver, which need a healthy pullback before turning up again.

Yahoo: a good value investment with little risk

Early this year, I started to become interested in Yahoo and thought it could be a target of acquisition. I'm still thinking so and believe it is becoming more and more so.  I'd really be surprised if Apple does not want to buy it at this price with such a great synergy involved. Of course, Apple is not consulting me and I don't know what they are going to do. But regardless, I think Yahoo, at a price of around $15 per share, has become a great value stock with virtually no risk associated with it. Why so? As I said before, Yahoo has a huge stake in Alibaba, a monopoly player in China similar to Amazon or eBay. Yahoo also has a good portion of ownership of Yahoo Japan. Simply with these 2 positions, Yahoo has got a $18 Billion value if liquidated. What's Yahoo's current market cap? Also $18 Billion! In other words, even without talking about a lot of other valuable patents and techniques Yahoo has, Yahoo's current share price is fully covered by the values it owns for Alibaba and Yahoo Japan. To put it another way, there is virtually no risk for any substantial loss if you buy Yahoo at about $15, but there is a great potential for Yahoo to go up either being acquired or via joint venture of some sort. One just needs some patience to wait for it to happen one way or the other. Of course, its share price may still go down a bit as the market is not always rational and it may become so depressed that it will bring down virtually anything regardless. But any such decline for value investors is always a great opportunity to get in for bargaining prices of good companies. I think Yahoo is one of them. As I said, I have already bought some of Yahoo's shares and are going to buy more if the overall market corrects, which I expect will come soon.

Sep 12, 2012: Beginning of End

Please remember this date, Sep 12, 2012. This will certainly be a historical date as the start of the final jurney towards the total crash of the world reserve currency, the US$! If you have read my blogs in the past a couple of years, you know I have talked about the problems of currencies numerous times. I have said both US$ and Euro are toilet papers and will eventually lose all their face values. But I have never got such a strong feeling, when Bernanke announced the QE3 or more precisely QE Forever on that day, that US$ is really entering the final stage of its life. Friends, this is a very scary world that almost all the countries are trying their best to debase their own currency. The race to the bottom has started over 10 years ago and become more and more fiercely as time passes by. Just the in the past few months, the UK central bank announced QE, followed by the ECB with unlimited QE in the EU, followed by the US Fed with also unlimited QE, followed by the Japanese central bank to further step up its over 20 years of QE, and likely followed by the Chinese central bank with more stimulus to be announced. This is the fundamental reason why precious metals, especially gold and silver will go up and up with the sky as the limit! See what has happened regarding the gold price (GLD) vs major currencies in the past 5 years. All the paper money has go down in value in a large margin in the past 5 years, and will be much more so if you look at the past 10 years chart.  If saving your hard-earned money in the bank is still your main means for retirement, you really need to wake up. Your purchasing power will certainly be wiped out relentlessly over time.

A scream buy for platinum?

I talked about platinum about a year ago in Nov, 2011. I thought platinum's price should capture up and surpass gold based on its rarity and historical valuation. It did attempt and was very close to the gold price in Mar this year but failed again. Their divergence climaxed in Aug but in the past few weeks, platinum has started its momentum and almost reached the pair with gold these days (see below).



 

Will it succeed this time to surpass gold? No guarantee but there is a good chance this time. Why? Shortage of supply due to significant disruption of mining production in South Africa (SF). You probably don't see much in the mainstream media but currently the mining industry in the S. Africa is fighting for its life due to the political struggles ongoing there. Without going into details, the radical left-wing politics are fighting with the governing African National Congress for power and the mining industry is facing nationalization. The unstable political situation has led to violent strikes, which paralyzed several South African mines this year, including most recently the giant Lonmin platinum mine. You see, SF controls about 70% of the world output for platinum. Any prolonged reduced production there will cause a steep price rise. I think this time platinum is catching up not simply based on its historical valuation, i.e. more valuable than gold, but more so because of the supply shortage. If I'm right, I think platinum's price will jump up sharply from here in the coming months. Of course, it may take a breath to pause or even decline a bit but that will only give it more strength to advance. PPLT is the ETF for platinum.

Everything is up except US$, but its bottom is close

As widely expected, the Fed has announced the next round of money printing, QE3. Actually it should be called QE infinite since Bernanke has apparently lost confidence in limited money printing. He said this QE will be open-ended with no limit and will continue as long as the job market is not significantly improved. What does that mean, folks? It simply means the world will be full of cheap US$ floating around and your purchasing power will continue to be reduced going forward. That's why you see virtually everything is shooting up sharply after this announcement, especially precious metals. The only thing tanked is understandably US$ (see below).

These days, the talking heads on CNBC are quite excited. I watched today's CNBC Fast Money on currency trading and unanimously everyone is betting that US$ will further slide. This has triggered my contrarian mind to be activated. I'm betting that US$ is close to its bottom and will soon start to appreciate. If this indeed is correct, then everything else will plunge. That's why I'm setting up positions to long US$ (via UUP call options) but short others, expecially small cap companies via 3 x leverage ETF, TZA. I think banks will also sharply retreat given this sector has advanced so much in the past 2 weeks. So I'm buying short-term Bank of America (BAC) puts as well to bet its decline.

The best gold company is soaring

I have said Royal Gold Inc (RGLD) is the best gold company,  period. It does not mine a single ounce of gold but it receives tons of money from other gold mining companies via royalties. Almost one year ago in Oct 2011, I talked about shorting RGLD as a short-term speculation as it jumped up too high too soon. But I thought it was a good buy when it reached around $60 or below. Sure enough, RGLD has significantly outperformed not only its peers (i.e. other gold stocks), but also gold itself in the past year. When almost everyone in the gold sector is struggling, RGLD is a sole flower blossoming in its full capacity! See the chart below [RGLD (green), GLD (blue) for gold and GDX (red) for gold stocks in ETFs].

I put my money where my mouth is. Below is my current open position for RGLD in one account. It is a combo of long call options and naked put selling to boost the profit. But simply buying RGLD shares will be doing just fine long term and you can also earn its dividend. I said a few days ago that it will be good opportunity to buy gold and gold stocks at their pull back. I'm planning to do so to add more into them.

RGLD Jan 18 '14 $60 Call   33.80   5.70  20.28% $380.00* 2 $19.90   $2,773.23   69.56%   $6,760.00

  

RGLD Jan 18 '14 $70 Put    6.00 0.00 0.00%      $-0.00   -10      $12.50 $6,483.90   51.80%   -$6,000.00                                                                                                                                                                                                                                                                                                                                                                                        dit

                       
                  


 
                 

Euro is advancing as I predicted

In early June, I said I expected Euro would go up in the next few months. Well, Euro is behaving exactly as I predicted then. It dropped to around 1.20 but now it is trading against US$ for over $1.27. A 6% jump for a major currency within such a short period of time is quite significant. See the chart below: Euro (FXE) in blue line vs US$ (UUP) in green line.

Of course, nothing fundamentally has changed for Euro. As I have said many times, Euro is a dead currency and it won't last long. The EU central bank can do whatever they want to try to save it but they can only prolong its life to certain limit. Euro is just like a dying patient with late stage cancer. Unfortunately it will die regardless. I have made quite some money by betting for the dying Euro and I will continue to do so when such opportunities come up again. I think it is coming now. I don't think Euro has exhausted its upward energy yet for this leg up but I will start to consider to short it when it goes over $1.30. I think it will be the free money as well, as I have collected several times in the past few years.

Where to safely park your cash

I said it was stupid to predict what the market would do in the next day. Apparently I was indeed stupid to do so the day before. Actually I was half correct to say that Bernake would not announce QE3 but the market was not really disappointed about that. Bernake said the extreme weak job market was a "grave concern", which was deciphered by the market as a sure signal that he will take action pretty soon to open the floodgates to print money.

Now today's topic. If you have spare cash, where would you like to park it? I guess most of people would say to put it in a saving account. In today's near zero interest days, you may be lucky to get 1% interest for your saved money, but you need to pay tax on the interest as income. If you are at the 35% tax rate bracket, what you really get is only about 0.65% on your money. I think there is a better way to park your money and this is what I'm doing.

There is a mutual fund called Near-Term Tax Free Fund (NEARX), which invests in municipal bonds with short-term maturities issued by state and local governments nationwide, including holdings e.g. from the City of Chicago, the Commonwealth of Puerto Rico, and the City of San Antonio Texas Water System Revenue. If you know MUNI (a nick name for  municipal bonds), you know they are quite safe, similar to the US treasury bond. That's why Morningstar rates NEARX  4-Star ratings overall in the 3-, 5-, and 10-year categories. Actually in over the past 10 years, this fund has always been positive in its annual performance, i.e. not losing money at any year, including the most dire year of 2008. I think you can basically consider NEARX as a bank CD or money market fund for its safety. The best feature of this fund is that it distribute tax free interest as indicated by its name. So don't laugh at its 1.03% yield. This is the tax-free income and if you pay 35% tax, it equals to about 1.77% interest you can get from a saving account. So for the money I'm putting at sideline for investing opportunities, I simply buy this fund while waiting to earn some tax-free money.