My conspiracy guess

It is again a jobs report week that on Friday, the government will issue the data how the labor market looks like. The most watched figure is about the non-farm payrolls (NFP). A strong NFP suggests more hiring, a good sign for the economy and may trigger a rate hike in Sep as the market is currently thinking. So what will we see in 2 days? Well, guessing about the job data, especially the market reaction to the data, is almost suicidal. There is no way to predetermine how the market will react as good news could be good or bad and the threshold of good vs bad is anyone's guess. It is all emotional. But still, let me try to guess and actually I have a conspiracy theory in my mind. I think the government will report a NFP that is good enough to show that the economy is apparently improving but at the same time, the NFP is not strong enough to provide the FED sufficient excuse to not to raise the fund rate in Sep. Although the market is very nervous about the possibility of a rate hike in Sep, personally I think there is zero chance this will happen. You really think Yellen wants to be viewed as trying to influence the coming presidential election in Nov? She is clever enough not to do so but she needs good excuse for doing nothing.




So what will be the beneficiary if my theory comes true? Gold for sure! As I have expected for weeks, gold is due for a meaningful correction and indeed we are likely seeing it happening now. While I don't think the correction is already done and more pain is likely ahead of us with more downside for gold, in the very near term, gold and its stocks are very oversold due to the concerns of an imminent rate hike. It is due for a fierce rebound and the Friday NFP may be the catalyst for this rebound. Let's see how this drama is unfolded on Friday!

Buffet’s view on gold

For anyone who knows Warren Buffet, the living investment master, it is well-known that his has a very consistent negative view on gold. You can see his famous comment on gold here and I copy one of the most humorous saying:  “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

But I’m surprisingly just learning that the senior Buffet, the father of W Buffet, has a totally different view on gold. I must say the senior Buffet was a great politician with a great vision, warning the disastrous path of any fiat money including the US $. He was actually calling for restoring the gold-backing monetary system almost 70 years ago.  I’m really impressed by his great vision foreseeing the chaotic financial world today we are facing, all rooted from the limitless expending and money printing of all the governments around the world.  I extracted a few points from him below:

In a free country the monetary unit rests upon a fixed foundation of gold or gold and silver independent of the ruling politicians. Our dollar was that kind of money before 1933. Under that system paper currency is redeemable for a certain weight of gold, at the free option and choice of the holder of paper money.

That redemption right gives money a large degree of stability. The owner of such gold redeemable currency has economic independence. He can move around either within or without his country because his money holdings have accepted value anywhere.

But first let me clear away a bit of underbrush. I will not take time to review the history of paper money experiments. So far as I can discover, paper money systems have always wound up with collapse and economic chaos.

There is only one way that these spending pressures can be halted, and that is to restore the final decision on public spending to the producers of the nation. The producers of wealth – taxpayers – must regain their right to obtain gold in exchange for the fruits of their labor. This restoration would give the people the final say-so on governmental spending, and would enable wealth producers to control the issuance of paper money and bonds.

With a restoration of the gold standard, Congress would have to again resist handouts. …..Congress would be forced to confront spending demands with firmness. The gold standard acted as a silent watchdog to prevent unlimited public spending.

But, unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money.

There is no more important challenge facing us than this issue – the restoration of your freedom to secure gold in exchange for the fruits of your labors.

Lowest interest rates in 5000 years

You may think I’m joking but no, I’m not and this is not a typo but is what a recent Bank of America Merrill Lynch report was saying:  thanks to the global financial crisis, relentless interest rate cuts, as well as unrestricted asset buying by the central banks, current interest rates have been pushed down to their lowest level… in 5,000 years!  I don’t know how they calculated the interest rates thousand years ago but regardless, you need to get the point that it is really unprecedented with what’s going on around the globe in the financial world that makes interest rates so low that no one has ever seen.  Here is just a brief summary of what we are facing:

• One third of all government bonds worldwide, which is over $13 trillion, are traded at valuations with negative rates. In other words, bondholders are holding those bonds which will get less than their original capital back at maturity.
• It is estimated that in about 25% of the global economy over half a billion people, they are living in the negative rates world.
• The worst areas hit by negative rates are Europe and Japan. You probably already heard that nearly 20% of Italian bank loans are not performing, meaning losing money.  In Japan, over 90% of government bonds are yielding 0% or less.

So what will come with such a widespread global negative rate phenomenon? You can bet that banks in general will really suffer more and more as bank profits are so dependent on the "spread" they earn between interest paid to depositors and interest charged on loans.  The extremely low and even low interest rates have made bank powerless in making money.  Many European banks have already implemented negative interest rates for their business customers and now we are seeing more banks are even going after their residential customers to charge them for depositing money in their banks.  You may think we live in the US are fortunate and no need to worry about the devastating problems other countries are experiencing. Don’t be happy too fast! While Yellen and the Fed have kept brainwashing you about the coming rate hike, the chance of any meaningful rate increase is near zero. On the contrary, rate cuts or even going down to negative rates have a better probability down the road, believe or not. Be prepared for a looming financial crisis bigger than what we have seen in 2008. It may sound like a crying-wolf at the moment, but the crisis may hit you more devastatingly than anyone can imagine, if unprepared. Here are a few things one may do now when it is not too late:

• Buying gold/silver or their stocks as much as you can, especially when they correct. It appears we are likely seeing a meaningful correction as I’m writing. Precious metals will behave like a last man standing in a financial crisis, especially in the environment of negative interest rates.
• Shorting bank stocks, especially those that are deeply in the mud even right now. I can think about 2: the Deutsche bank (DB) and Citi Group (C). You can simply buy and hold their LEAP (those matured 1-2 years after) out of money put options in 2018, for example. The cost is very low but you may see several times return of your money when they drop like a stone during a crisis. Believe me, they will be among the first ones to plunge if a banking crisis hits.

You may even short the whole financial sector by buying LEAP put options on the Financial Select Sector SPDR ETF (XLF). Again a few hundred or thousand dollars for its out of the money puts may bring you back several times your money when US banks implode, following their European brothers. I firmly believe this is just a matter of time, not if but when.

An unusual way to ride the unstoppable trend for electric cars

Nearly everyone loving cars knows about Elon Musk and his company, Tesla. Like him or not, Musk is a business genius and Tesla is a Wall Street darling for electric cars (EC). While I personally cannot see how Tesla’s stock can grow further from here with a nose-bleeding expensive valuation already priced in, there is no way to see any slowdown of the EC development trend in the foreseeable future. This is not about one particular company but a trend that virtually all the major car companies are invested in and will only continue faster and faster. This is huge trend folks and demand will be supper high as time passes by! A lot of money can be made to ride this trend moving forward.

Needless to say, you can directly buy car stocks that are developing ECs but except Tesla which is already crazily expensive, most of the car companies are not pure EC manufacturers.  So what else one can go in at a relatively early stage for this trend?  Well, just think about what is the bottleneck for ECs?   As the name implies, ECs will need electric power to move it. So the major concerns for them will naturally be the recharging stations and the range they can run after each charge. Right now,  ECs generally have a range of 200-300 miles per charge and will need about 30 minutes to recharge. This is a kind of pain for those who want to drive for long disturbance, isn’t it? But I think as the demand will be increasingly higher for ECs, new technologies will be developed to significantly cut down the recharging time and prolong the driving range for ECs. You may guess what companies I’m going to talk about for the EC trend now. Yes, the charging companies that are innovating in the much needed charging business for ECs.  Again you may buy Tesla for its own charging business via the so-called Gigafactory but I’m more interested in the pure players in this business. I can think about two at the moment: Car Charging Group (CCGI) and Envision Solar (EVSI). GGCI is attempting to build up nation-wide charging network for ECs and EVSI is more innovating in the sense of developing solar-power charger that can also be charged at night. Be aware though, both are penny stocks and as such are risky. But on the other hand, you take the risk to be early in the trend and the potential reward could also be huge if they are successful. I think there is great risk-reward potential for the two!

A Cloud Business likely no one would think about

Cloud business nowadays is one of the hottest areas with a tremendous growth potential. But what companies you will think about when we talk about clouding? Likely Amazon or Microsoft like high tech companies in your mind. You may not believe what I’m going to tell you below.

I guess many of you have heard about stun guns,  those electrical weapons that won’t kill you but will paralyze you with electric shock waves. The manufacturer of the stun guns is Taser Intl (TASR). While TASR is most famous for such stun guns, it has gone much beyond the weapon business. Actually it will boom much more from its cloud-based business that no one is talking about.  Let me explain.

You probably have heard more and more tragic stories that involve police-related deaths. Police was accused of overusing power that caused accidental deaths of suspects. As such, it becomes a very real need for police to wear body cameras that will record all the details of policemen’s actions during their law enforcement work. Such body cameras will actually benefit both sides: for police they can prove what they are doing is appropriate and for suspects, they have less fear to be beaten or killed in front of a camera. TASR has seen this lucrative business and is offering two versions of its body cams: the standard Axon Body and the Axon Flex. Needless to say, the cams business is booming due to the increasing demand, not only in the US but likely also internationally. But TASR does not stop there. This is really the clever part of the TASR management. As we have seen many examples (e.g. Apple’s iPhone), regardless how high a demand is, there is a limit and it will go down over time as the market need is saturated with the supply. To overcome this problem, TASR has set up a cloud-based database called Evidence.com, which can upload, store all the evidence videos recorded by policemen.  They often bundle its body cameras with a subscription to Evidence.com that makes the life of police department a lot easier to store and manage such videos as potential evidence when needed. Think about it,  as long as policy will use their body cameras, the need for this cloud-base database will not go down.  This is really a great business model that will benefit TASR for years to come. In fact, such a database, when capturing more and more data after years of operation, will become unreplaceable as no one can replicate the historic data if not initially captured. I think TASR’s Evidence database will likely also become a valuable source for future uses beyond simply providing some evidence for police.

This is an out of norm cloud business that not many people are thinking about it but I see a great potential for TASR in the foreseeable future!  

Making money is never easy

I guess everyone agrees and there is no certainty in the stock market, especially in the biotech sector and worse in betting for a FDA decision! Unfortunately we got a real time example today with PTLA that I was expecting an approval yesterday. Instead, PTLA got a so-called complete response letter (CRL). In the biopharma jargon, a CRL means a non-approval decision, which will list what else the FDA is requesting for further consideration. One of the worse requests is new data that must be collected from clinical trials since such data will take years to provide. The CRL PTLA got seems not so bad as the key missing information is about some manufacturing issues and some details about the 2 anticoagulants that Andexxa is supposed to counteract. Without knowing details, my guessing is that this kind of information can usually be provided fairly soon. Given that the FDA did not question its efficacy and safety, I think it virtually told PTLA that this drug is approvable but just need a bit more time. Personally I think this gives another better opportunity to speculate on PTLA. We certainly will know more after PTLA meets with the FDA but I bet it will be positive to move the stock up from the current depressing level.  

As I said, I used a combo option setup to hedge my risk and it really works well as today’s 20% plunge did not hurt me at all. I will use this opportunity to go long again for PTLA as I think we now have a better chance to win this time.  Actually today’s price action for PTLA is quite impressive and positive, suggesting the selling pressure may continue to go down from here, barring of course any unknown negative surprises emerge.

I don't like the price actions of gold

I have been expecting for a sizable correction of gold and silver for some time but there has never been any significant correction since the bull run started early this year. Yes, there are some price fluctuations of gold but whenever there is a dip, buyers are coming in to hold it up. A really very strong uptrend that for sure will last for years! But am I ready to give up my cautious view for the short-term correction of gold/silver? Not yet. I still think the risk for a sizable correction is quite high and can happen any moment. I have been reminded again and again that the technical analysis for gold is not that much useful, given we are constantly seeing black swans that may be flying out from any part of the world to scare people around. I got the point but I'm just stubbornly thinking that the current technical setup for gold is not bullish at all, or even quite bearish in the near term. The price actions of gold in the past couple of weeks are really weak, to say the least!


Having said that and while I have been wrong to date about the meaningful correction of gold, it does not mean I'm simply sitting at sideline to wait for a possible correction to come. On the contrary, I'm still very active in trading gold stocks by taking advantage of its price fluctuations. As I said before, in the current situation with side way range bounded price movement for gold, the best way to trade is to use covered calls. For those good at options, I'm even adding naked puts to juice up my profit potentials. With both covered calls and naked puts, I can enjoy whichever direction gold decides to go. For example, for a few months, I have been trading the leveraged gold stock ETF, NUGT via its weekly options. This is a crazily volatile ETF that can easily move 10% up or down within a day or two. But such kind of moves are good for trading as long as one knows how to manage out-of-the-range moves. It is certainly not for everyone, especially not for those with a faint heart. But I enjoy the incomes I have obtained from it. Eventually this synthetic option strategy can help to build up some long term positions when gold clears its overhead hurdles and be ready to go up sustainably. Regardless how I feel about gold in the short term and whether or not I'm right or wrong, gold treats me very well. I love gold unconditionally!!

A high risk high return trade on the FDA decision

A few weeks ago a friend was asking me about my opinion about Portola Pharma (PTLA). My reply was that I did not follow PTLA closely but it technical looked good and its product waiting for approval was quite interesting. After that I did some further digging about PTLA and actually became very interested in it, so much so that I have bought PTLA.

Next week will one of the most critical moments for PTLA as FDA has a decision date by Aug 17 to decide whether it will approve the PTLA drug, Andexxa. Betting for the FDA decision is of course with high risk but I think the potential reward is also enormous. Andexxa is a first in class drug, an antidote to specific anticoagulants (blood thinners) known as factor Xa inhibitors. There are many anticoagulant drugs available to prevent blood clots.  Well-known factor Xa inhibitors include Xarelto and Eliquis and millions of patients are on such blood thinners. The problem is that these drugs have a notorious life-threatening side effect, bleeding. Unfortunately currently there is no effective drug yet to reverse the blood thinners. Andexxa is the first one that has been shown in clinical trials to be safe and effective in immediately stopping bleeding caused by the anticoagulants. You can imagine if approved, how potentially profitable this drug may be for PTLA.

When I bought PTLA call options, I figured that it would move up towards the FDA decision date. This is exactly what has happened as my calls have gained nicely so far. But let me be clear, while I do think the chance of approval is high, there is no guarantee of course. The FDA decision may swing PTLA by 25% either way easily. As such I have also covered my downside risk by partially setting up a bearish call spread in my position. This way, I won’t cap my upside if approved but will not suffer too much if it fails and plunges. Actually if it drops too much, I may even be profitable as a whole with this combo strategy. That’s how I’d like to set up my high risk high return positions.

Technical prediction can work

Here is the news: Valeant Pharmaceuticals reported Tuesday that second-quarter sales slipped 11 percent year-over-year to $2.4 billion, coming in below analyst estimates of $2.5 billion. Meanwhile, its quarterly loss widened to $302 million, from a loss of $53 million in the same period of 2015. Still, Valeant shares gained as much as nearly 25 percent following the bad earnings report.  You may recall, I made a technical call for VRX 2 months ago when it fell like a stone following a disastrous earnings report.  I saw its technical strength at that time and my prediction at that time was that VRX could go up towards $29.  But my call did not work out immediately though. Actually VRX continued to slide down a few points from my call. Then all the sudden it jumped 25% higher following another big miss in earnings, touching $28 which is close enough to my target. Anyone having the gut to buy and hold VRX 2 months ago should be rewarded nicely. By the way, I did noticed that VRX plummeted again over 10% following the news of being probed for a potential fraud. Just a few words about this. First of all, as I said I had no intention whatsoever to suggest for a long term investment for VRX and this was purely a short term trading call. I hope anyone who held VRX till this earning call has already got out with profits. But even if not, this new damaging black swan that cannot be predicted by any technical analysis is not the end of VRX. Actually VRX is still technically bullish for the near future and this latest plunge may turn out to be another platform for its next leg up. This may likely be another short-term overreaction for VRX. Again, I’m just talking about this purely from the technical perspective. By no means, VRX is a good long-term investment!

 

Here is another example of my technical call recently. Also 2 months ago, Ralph Lauren (RL) fell 10% to $85 following disappointed earnings. But again I saw a technical strength with it. Here is what I said:  Anyone who dared to buy it below $90 should be really happy as we are talking about over 5% immediate gain over just a few days. But I think it has more upside potential moving forward. Today is another demonstration why RL is quite bullish technically: when the overall market is under heavy selling with nearly a 20% jump of the volatility, not much downside move for RL today. I will hold RL as long as possible until I see a technical bearish sign showing up. For now, I only see a strong upward trend for it. RL did move up after my call to around $100 but then came down again towards $90 thereafter. Last Wed, RL finally exercised its technical power and sprung 10% higher following a good earnings report. Now it has overcome its 6 months resistance around $100 and has definitely broken out from its side way trading range. This is again very bullish technically and I won’t be surprised to see RL marching towards $120 in months ahead.

 

In a nutshell, the technical setup for a stock is an integrated summary of the stock status based on the combination of fundamental and emotional factors. It often has a good predictive value if no unexpected surprise arises, although it may not work out immediately. I recently made another technical call for Gilead. It hasn’t worked out yet but mark my words: I’m very confident that GILD will sooner or later follow its technical strength to move a lot higher from here.

Trading ideas to ride with the Olympic Games

The 2016 Rio de Janeiro Games is starting now and the opening ceremony is just a few hours away today. So I will be brief. I'm sure many friends are wondering what will be the good trades for one of the most important sport events in the world. I have 2 for you to consider:


The Olympic Games is no doubt one of the world's biggest, richest media events you can find. As such, media companies are the natural choices for such a most watched game. Comcast Corp. (CMCSA) is one of them to consider. It made $41 billion from the 2012 Sochi Winter Games with 80% of its profits from ad sales.  Aside from acquiring a 51% majority ownership of NBCUniversal in 2011, Comcast has been aggressively enhancing its technology and marketing to increase its high-speed Internet subscriptions, from which to further boost its sales and revenue. The most important catalyst to position it well for the Olympic Games is its latest technology, the X1 Entertainment Operating System, which provides subscribers with a unique interactive TV experience together with a voice-controlled remote. It appears this strategy can keep people tuned in for everything they could possibly want. Per the recent report by TheStreet, Comcast has already installed approximately 40,000 of these X1 boxes a day. This could be further pushed up during the Olympic Games (OG) in the next 2 months. Technically, it has already broken out its all time high, a very bullish move. I bet the OG may turn out to be a great booster for Camcast's businesses!


The second idea is the ETF for Brazil (EWZ), the hosting country for the Olympic Games. But this is not a long trade but instead a short trade. Call me crazy but I think EWZ is likely peaking with the start of the Olympics. EWZ has been rip-roaring in the past 6 months or so and has almost doubled since its Feb low. But if history is of any guide, EWZ may go down substantially from here either immediately after the start of the Olympics or soon after the end of the games. You see, we had seen something very similar last time when Brazil hosted the FIFA World Cup for soccer. It went up to all time high with a 25% jump a few months heading into the start of the World Cup and then lost nearly 40% of its gain within a few months after the World Cup. I bet we will likely see something similar this time. Its technical is sending a bearish signal as well: a negative divergence is forming when it is breaking out its recent high in April. Its MACD is turning down now. We are probably witnessing a "buy the rumor and sell the news" type of setup for EWZ.


Let's see if my two bets will turn out to be profitable along with the exciting start of this year's Olympic Games!

Don’t be surprised for a wonder rally for oil

Oil has experienced a brutal selloff in the past couple of weeks. About 25% plunge within a very short period of time is nothing charming for the oil bulls. But if you listened to what I was saying, this is not a surprise at all. Here is I said when oil was on its way up towards $50: The recent COT report did show that the speculators long positions have gone beyond 400,000 as the oil price is close to $50. I think there is not much left for oil to go up in the near term but rather there is a high risk that oil will tank soon. Be prepared for it if you are long oil now!. Some friends were asking me how low oil could go with the coming correction, I said at least low $40s, for which I was challenged by the feedback that they could not see any catalyst for that much a correction.  Well, now it looks like my prediction was too conservative as oil has breached $40. Has oil touched the bottom for this correction? It is possible but I doubt. Oil is not yet in a good place to find its bottom yet: slower economy in the US and increasing challenges for the world economy are met with overproduction of oil already at the moment, for which the situation will only become worse when more oil supplies will be coming from countries like Iran, Iraq, or Libya. I won’t be surprised to see oil goes down to low $30s in the next few months. Having said that, oil has been extremely oversold at the moment and don’t be surprised to see a violent one or two day wonder rally for oil. But any such rally will fade soon I think. Don’t bet for a quick sustainable rebound for oil yet!! The world economy is simply too fragile to embrace a much higher oil for now. If you are short oil, taking your profit for now is not a bad idea. If you want to bet for a rally, it will only be good for an extremely short-term trading. Otherwise, you will pretty soon kick yourself.