Be ready for the first day mareket crash in 2013 unless .......

Well, the whole market has been misled by the Washington political show today. Traders thought a deal was almost done and would come to fruition tonight. So some sort of euphoria was prevailing towards the end of the trading. But exactly at one minute before 4 pm when the market was closed for 2012, the news was broken out that no deal would be made today but there was no time for people to dump stocks. I think a revenge will hit the market on Jan 2, 2013, the first day of trading in 2013 and let's be ready for the a severe sell off in 48 hours, unless some sort of miracle occurs that they strike a deal on Jan 1, 2013. But I'm almost sure now that a deal will come very soon, if not by Jan 2,  to revert the fiscal cliff. So to me a market crash is likely a good buying opportunity. We will see.

                                       Happy New Year!

An out of box way to ride the aging megatrend

What is the sure thing in one's life? Not many but one thing is sure for everyone, that is, everyone will eventually die, unfortunately. I guess with this question you can guess what I'm going to talk about regarding the aging trend. No question that the world is facing a very significant megatrend that the population is becoming more and more aging, especially in the developed world including the US. Of course there are many companies involved in serving the elderly population but what I'm talking today is something not many people will think about in terms of investment, the funeral service industry. Well, let's face it. If the population is aging and the baby boomers in the US have mostly come to the elderly age range (over 65 years), it is inevitable that more and more people will come to the end of the life; in turn the funeral services will be demanded more and more. Actually death in America is a $15 billion a year industry, which includes funeral homes, crematoriums, and cemeteries. The average cost of a funeral is about $8000. Around 2.5 million people die every year in the US. That's why it is wise to also include some good death companies' stocks in your portfolio if you want to ride the aging megatrend.

Hillenbrand, Inc. (HI) is a global diversified industrial company that makes and sells premium business-to-business products and services for a wide variety of industries. But its leading products are funeral related products and it is the leader in the North America in this industry. HI sells 45% of caskets in the US, which amounts to 800,000 of the 1.8 million caskets sold in the US each year.
In addition to this, the company sells cremation containers and urns. All of Hillenbrand’s funeral products are sold under their Batesville Casket Company brand, which was founded in 1906.

HI at $22 is reasonably priced with a PE at 13. It is apparently at its uptrend, which I believe will continue. After all, death will occur regardless in what economic situations, good or bad. I'm especially more interested in its good dividend yield at around 3.5%. I have already added it into my portfolio and may add more if the overall market corrects to bring it down as well.

My "crystal ball" for the last day of 2012

Well, it has been a very volatile week before the final year end. Overall the market has been under quite some pressure due to no action from Washington for the fiscal cliff. While I don't have a crystal ball for what may happen on Monday, I do have some gut feelings about what could happen. It again all depends on how the saga in Washington will play out. If a deal is announced before the end of the trading in the last day of the year, then the market will likely shot up dramatically, a kind of relief rally. But more likely I think there is no deal announced when the market is closed, and we could see some significant plunge of stocks. This will serve as a warning sign for the politicians, who will then reach a deal before the mid night of Dec 31, 2012. If this is the scenario, then Jan 2, 2013 will meet you with a huge rally. Anyway, no one can tell you for sure what will happen. It is anyone's guess at the moment. Personally I hope some sort of market crash will come, which will give me a better chance to buy what I like.

S&P plunged 1% today

What a timing! It was almost that the market was whispering at my ear last evening that it was going to go down sharply today. Just kidding. Well, this is exactly something I have been thinking and expecting: extreme volatility in the last week of the year. Barring anything dramatic happening over the weekend, I think next Monday will be a bouncing back day for the markets, followed by more volatility after the Christmas break. If you would like to speculate, this is the best time for day traders and you may be able to make quick profits within hours if you are nimble enough and of course also right at the direction of your trading. I happened to take a day off today and in the early afternoon I took a shot with a small trade for Microsoft when it was sold off hard. Well, by closing, my position had come up 50% already. Not a shabby trade in any sense that just took a few hours. But always be aware that this is rather risky trading and don't bet too much with your money.

How may the market behave the last week of 2012?

About 3 weeks ago, I said to expect a year end rally. Well, we have definitely got the rally. If it were a normal time, I'd think this rally may simply go ahead without much interruption into the new year. But this is not a normal time. With the ongoing Washington drama playing out regarding the so-called fiscal cliff, the market is very much like a schizophrenic patient, which can be up and down with a heart beat. But until now, the market is amazingly holding up well in the very unstable time period. What I'm thinking may likely play out is that the deal may not come till the very last minute, just like last time the two parties' fight for the budget ceiling. If this comes true, very likely the market will plunge significantly next week, the last few days before the year end. This drastic drop of the stock market may become a warning sign for the Washington politicians, who will then be under a huge pressure to finally get the deal done. In other words, I still think the fiscal cliff deal will still be made but at the expense of a significant market correction. However, this kind of correction may be a great buying opportunity.

Just a quick word about gold. It has plunged for a few days quite dramatically. Now it has broken through its 200 day moving average around $1650. This usually mean further decline will ensue. I think it may come down to around $1600 and if it does, it will be a great buying opportunity. I'm excited for this kind of opportunity.

By the way, we are moving this weekend. So likely I won't have time to write anything over the weekend. Wish you all a very Merry Christmas!

Bite APPLE again

I was definitely too early to jump for Apple (AAPL). I started to establish my AAPL positions when it plunged from $700 to $600. A bad timing! When AAPL was over $700, everyone was excited about it and talking about $1000 Apple. You could hardly find any analyst who was bearish about AAPL. Now, AAPL is flirting with $500 per share; it dropped below $500 briefly yesterday. Suddenly you can hardly find any analyst who is bullish about AAPL. People are simply running away from it. What a few short months can change of everyone’s opinion. I’m just amazed!

 I don’t know if this is the bottom for AAPL or not and I’ll certainly not be surprised if AAPL continues to decline for a while. But let’s face it. AAPL is fundamentally cheap in terms of its valuation (P/E is just 11 times its past year earnings for such a great company) and AAPL has a huge pile of cash (over $100 B) in hands. Although AAPL is facing more and more competitions, I don’t think AAPL is suddenly losing its edge over its competitors. At some point, value investors will step in to pick up AAPL. I’m starting to craft my plan to get into AAPL again by forcing others to pay me while I’m waiting for buying AAPL at $400. I just cannot believe no one will be interested in AAPL if it indeed plunges to $400, another 20% drop from the current price. Of course, I’m not predicting AAPL will go to $400, but just a worst case scenario for myself that I will have to buy AAPL at that low level if the Apple world is totally crashed.

Is it time to bet for Japanese stocks?

Japanese yen lost ground but the Japanese stock market jumped 2% higher overnight. Why? Because the liberty party led by Abe won the election although widely expected. So why it is so special with his win? Because Abe’s plan is to double Japan's inflation goal from 1 to 2% and to provide unlimited easing in order to try and stimulate economic growth. In a plain word, he is going to print unlimited money to try to dig Japan out of the deflational hole, an economic nightmare for Japan for the past 20 years, so-call Japan’s lost 2 decades. So will money-printing really promote growth? Not a chance in the long run; otherwise every county can simply print money to prosperity. But this is usually a great opportunity for traders to expect high stock prices in the short run. After all, Japanese stocks have lost ground for 2 decades and valuation wise, they are very cheap now. Any stimulus will likely have a positive impact on stock prices for a while.

For aggressive traders, EZJ, a leverage ETF, may be a way to play with this uptrend. However, I probably won’t jump into it right away. It has been in a range bound in $48-56 in the past half a year. If indeed the Japanese stocks are immediately going up with the prospect, EZJ should break upwards through $56. If that happens, there is much better chance that it will go up further with more momentum. Otherwise, it may first drop a bit towards its low boundary at $48, which should be a strong support. Buying at that price will give you a much better chance to be profitable.

For long-term players, a Japanese SmallCap dividend ETF, DFJ, will be a much safer bet. It is cheap (P/E at 12), in an uptrend, and paying good dividends at 4.0%. I don’t think there is much risk for this one.

Berkshire Hathaway is still cheap

Everyone in the investment world knows Warren Buffett, the most successful investor of all time. His company, Berkshire Hathaway (BRK-A & BRK-B), is traded at $134,000 per its A share and its B share is 1/1500 of it at $89 per share. Do you believe if I say BRK is still very much undervalued at this huge unit price? Indeed, it is still very cheap, believe or not. It is estimated that BRK is roughly 25-30% discounted against its intrinsic value. No one knows its value better than Buffett. He certainly sees the great value of his own company at this cheap price, so he is aggressively buying his own company stocks. In 2011, Buffett announced that he would buy BRK up to 110% of its book value. Just a couple days ago, he raised his buying price to 120% of its book value. This basically puts a floor for the BRK price, since Buffett will buy and therefore support the stock price if it drops below its book value. At the moment, BRK's book value is $112,000 for A shares, or $74for B shares. So its share price is right at around 1.2 times its book value. So you should expect that BRK share price would not drop too much below this level with Buffett's buyback power behind the curtain.

Examining the BRK long term chart suggests some pattern of its price movement. Excluding the exceptional turmoil times of the past 15 years (2000 & 2009), BRK has been quite stable: it is generally around certain level for a few years and then this level is broken through and raised. BRK-B was narrowly traded at around $50 roughly in 2001-2003, then at $60 between 2004-2006, and recently at $80 in 2009 till early 2012. This reflects its increasing book value translated into its increasing share price. Looks like at the moment BRK is again breaking through its range now, which should mean a higher price of Berkshire Hathaway in the next few years.

Why plunging Freeport hasn't shaken me out

Two weeks ago, I talked about the coming shortage of copper and 2 companies which you might consider to buy to ride the uptrend. Indeed the copper's price is going up and one company, VALE, is also going up along with. However, the other stock, Freeport-McMoRan's (NYSE: FCX), has surprised the market by announcing to acquire McMoRan Exploration and Plains Exploration with a $9 Billion price tag. FCX is the world largest producer of copper. It owns a 90% stake in the gigantic Grasberg mining complex in Indonesia. Grasberg is the world's largest copper and gold mine. However, apparently FCX also wants to re-enter the energy sector. The markets did not like what FCX was doing and punished FCX by knocking about 20% off FCX's share price on the day FCX announced the acquisition.

I have got some positions with FCX for a while. With a 20% hair cut, one may consider that I have probably been shaken out of the FCX position. Nope! While my paper gain has indeed come down quite a bit, I'm still significantly in the money with a 46% paper profit. That's the beauty of using the so-called naked put option technique to long a stock. I don't need to be exactly right about the stock price. What I'm doing with this position (as shown below) is that I will be making money as long as FCX does not drop below $23. At the moment, FCX is trading hands at about $31. I still think FCX is a great company with very valuable assets. It may not be performing well in the near term, but I'm quite confident about its long term values. If it further declines significantly below $30, I will consider to add more of it to my portfolio.

FCX Jan 18 '14 $28 Put

3.05

-0.07

-2.24%

$105.00

-15

$5.75

$4,030.49

+46.62%

Bioprinting human tissues

You may have heard the 3D printing technology, which can print everything from wrenches to aircraft parts. Have you heard bioprinting, which uses cells to "print" human tissues?

Organovo Holdings (ONVO) is just such a company, which develops three-dimensional (3D) bioprinting technology for creating functional human tissues on demand for research and medical applications. The company’s 3D NovoGen bioprinting technology works across various tissue and cell types, and allows for the placement of cells in desired pattern. It offers NovoGen MMX Bioprinter, a commercial hardware and software bioprinter platform to create tissues for bioprinting research and development. For example, Organovo can grow heart tissue and makes it to beat like a real heart. Eventually I think human organs can be "printed" for transplantation purposes. You can imagine what kind of the market it can be if doctors can print organs whenever there is a demand for transplant.

ONVO is kind of stock with a huge potential but it will certainly be very volatile! It may jump several times within a few weeks but may burst equally fast. See the chart below. It seems at the bottom at the moment. If you have the gut for its volatility, this may be the time to consider to get in.

Shortage of copper supply is coming

While the Chinese markets are struggling, believe or not the Chinese economy is showing signs of recovering. Per Bloomberg report, copper supply shortages will extend into the first half of next year as an accelerating Chinese economy more than doubles the pace of growth in global consumption even as mines extract a record amount of metal. Given 41% of the world's copper is consumed by China, it will mean more demand should be expected. The problem is that demand will outpace supply by 316,000 metric tons in the first six months, more than all copper in London Metal Exchange warehouses, before a surplus emerges in the second half. Production has lagged behind consumption since 2010, according to the International Copper Study Group. The metal may average $8,300 a ton in the second quarter, 5.1 percent more than now and the most in a year, according to the median of 21 analyst and trader estimates compiled by Bloomberg. More stimulus has been announced or planned in the US, Europe & Japan will further deepen the supply shortage.

So how to ride this uptrend?  You may consider Freeport-McMoRan Copper & Gold Inc. (FCX), the biggest copper producer. It is expected a 44 percent gain in net income next year. It is also estimated that its share price may jump by 30% next year. You may also consider Vale S.A. (VALE), which is the largest producer of basic metals in Brazil and a significant portion of its metals is copper. Its price action appears to be bottoming. The shortage of supply of copper may fire VALE's stock price.