Go with Russia

Since my call for Russia stocks (RSX) almost 2 years ago, it has shot up nicely, especially with over 20% gains within a few weeks following Trump’s victory in election. As I said, it was too fast too soon and I expected some cooling after that jump. Indeed, it has declined over 10% since my call. Now I think RSX correction is likely over and is poised for another leg up. Let me explain.

The initial positive move for the Russia stocks was largely due to the expectation that Trump’s administration would have more productive relationship with Putin’s but this positive expectation has basically gone. The dirty politics in Washington has virtually made it impossible for Trump to do anything constructive in terms of improving the relationship with Russia, at least in the foreseeable future. It has been a constant non-stop flow of bad news for Russia regarding its worsening economic situation as well as major geopolitical challenges facing it. It seems Russia is dead economically and no one is interested in it anymore. Naturally all the bad news conceivable has likely already been factored in for the Russia stocks but RSX has refused to go down further from the current level around $20. Here is the thing: when the worst is expected, anything less bad could trigger a sharp up-run quickly. I think RSX is good one for diversification purpose when the US stocks are already so high for so long. It also pays a respectful dividend close to 2%. Russia is one of the emerging markets that may happily surprise people over the next few years!

Any fears out there?

Nope & None! Apparently everyone is happy and worry free at the moment. We can sense the euphoric mode of the stock market via the volatility index, VIX.  It has broken several histories this week: The VIX has never ended a session under 9 in its history but is on its way to do so.    It touched an intraday historic low of 8.84 on Wednesday, Jul 26. At its closing level, it has reached its lowest point in the past 24 years since 1993. And VIX has been so low below 10 only 20 times in the past 2 decades but just in the past 2 months, VIX has already been below 10 for over 20 times. Can VIX continue to stay this low? Definitely! But history tells us, a low volatility is always followed by a high volatility. I don’t think this time is different. While no one knows how long this low volatility can last, it can happen any time without warning. The risk of a sudden market crash is substantially increased when there is a widespread complacence without any fears out there. Actually there is a “crazy” trader who has bet heavily to expect VIX will shoot up to 25 in the next 3 months and if he is right, he could pocket in a whopping $262 million gain!

Probably this sounds laughable at the moment to bet for more than a double of VIX, I think there is high likelihood that VIX will go up substantially in the weeks ahead. We saw a sudden 50% jump of VIX within a couple days just a few weeks ago. With the historically low VIX in place, the risk of sudden jumping high is much higher now. Be prepared folks! This is the greatest time to buy puts as they are so cheap with low VIX, which can offer good protection against a sudden panic if it happens. Buying some VXX is also a good idea at this kind of environment although be aware, VXX is not a good long-term holding as its value will decay with time if VIX stays low for a prolonged period. Treat it as an insurance than a profit-oriented trade. Buying some October VXX calls for example can be more cost-effective than simply buying VXX. See my previous post regarding more ideas about buying protection during the extremely complacent market.

A strong dollar trend has reversed

US dollar has never become strong again since it cut its tie to gold over a half century ago. Actually it has lost over 90% of its purchasing power since then. Saving dollars in the bank is one of the most stupid ideas as it’s a guaranteed way to lose money. If you don’t know how to invest, buying gold and/or properties is one way to keep your money’s value. An equally efficient way to increase your dollar value with virtually no risk is to buy an appropriate life insurance.

Having said that, it is certainly not a straight line down for dollar’s downtrend.  From time to time, dollar will bounce back, even strongly at some time. Last two years has been such a good time for the US dollar. But the happy days for US$ has come to its end. Very clearly US$ has turned it tide and has started to move down for months now. This downtrend will continue for several years likely. The final bottom of this round of downtrend for US$ index could be around 75-80 or even lower from its current level around 100.  Buying some foreign currencies as currency diversification should be a good idea if you have a lot of US$ cash. Euro (FXE), UK Pound (FXB) Can$ (FXC) or Aus $ (FXA) will all be better than US$ moving forward.

A Pick & Shovel trade for the booming pot

Marijuana, also nicknamed as Pot, is still illegal at the federal level in the US but this is going to change and becomes a very hot commodity in the years ahead. Don’t argue with me whether marijuana should be legalized or not as this is a hugely controversial area. Personally as a physician I think marijuana’s medical benefits cannot be denied and its medical use should be legalized. This is a trend that cannot be reversed. Canada has become the first country in the world that has legalized marijuana’s medical use nationwide and will become the first country to even fully legalize marijuana use including recreational use next year. Here in the US, more and more states have legalized marijuana medical use. At the moment over half of the states have already done so and it is just a matter of time that all the states and even at the federal level, its medical use will be legalized. This is an irreversible trend. Like it or not, a lot of money can be made in this megatrend if you stay with it. There are tons of marijuana companies but be careful where you put your money in as majority of them are junk stocks and you may be even trapped into some scandals. One legitimate cannabis stock that you can trust is GW Pharma (GWPH). This is a UK based pharma company that has developed some cannabis based products for medical use. It is not cheap but a good one to hold if it comes down to a more reasonable valuation. One idea to ride onto the pot trend is to look for picks and shovels stocks that will provide necessary tools for cannabis companies without directly involved in the business itself. It is a much safer way to made money in an uncertain world. I have found such a company and you probably will never relate it to the marijuana business. It is my loved stock, Microsoft (MSFT).
 

Long time readers certainly know how much I love Microsoft and I think this one alone can make me really rich over time. It has over 15 blockbuster businesses (over $1 billion sales each) and it is on track to grow even faster under the current CEO. It has a great track record of paying growing dividends that will continue with a huge pile of cash in hand. I have mathematically demonstrated how to easily make yourself a millionaire with very little risk by simply sticking to Microsoft for long term. And I’m certainly doing that. Actually Microsoft is the single stock I put most of my money for long term holding with dividend reinvestment. Now back to its new venture in the pot business, which may very likely become another huge success given the non-stoppable trend. Last year, it has announced to team up with a company called Kind to develop a tracking software for marijuana companies. It is part of Microsoft’s cloud business that is booming fiercely. Regardless how the marijuana use is evolving, it will likely become a highly regulated commodity like tobacco or alcohol. As the CEO of Kind said, "Every heavily regulated industry has track-and-trace. Cigarettes are tracked, alcohol is tracked, gaming — slot machines — are tracked,"  "The backbone of every one of those industries is compliance." I think this is very smart and courageous move for Microsoft as till now, virtually no any other big corporations have dared to decisively move into the marijuana business. In a few years from now, probably many will make the move but Microsoft will have already firmly established its leading role by then. I like Microsoft more and more. Although I hope its stock would never go up but just stay low with increasing dividends to accelerate my wealth growth, it is inevitable that MSFT will go up substantially from the current level in the years ahead. Regardless, I will stay with it, waiting for the time when tens to hundreds of thousands dollars from its dividends will come in every year during my retirement. This is a Buffett’s way to become rich that you can count on it with Microsoft!

Just a quick word of the reaction to Microsoft earning report this week. It has again been a great earning report but the stock price didn't move and even a bit down. Why so? Well, MSFT has gone up almost straight line for 2 years from its $40s without much correction. The expectation is simply too high and it needs exceptionally good earnings to further excite the short-term traders. For long term actually a bit cooling is healthy for MSFT and I think some further weakness is likely in the near future.

Life insurance can go a long way for your wealth building

I was asked to provide an illustration for the WL policy I like (see below) and this has generated many interesting questions, such as if this is only suitable for people having a lot of free cash, is it worth to pay the high premium for so long and whether one should only believe the guaranteed projection but not the non-guaranteed projection. Let me offer some foods for thoughts here but my previous blog has already provided a lot relevant information.  The example below is for a 26 years old person paying an annual premium of $50K and the base death benefit (DB) is $3.7 million.

First of all, this example is just an illustration for a particular person but the principles and returns will be the same regardless the amount of the annual premium. Even if you just buy a policy with a $5K annual premium, the percentage increases over time will be the same, you will still start to turn all the premium into cash value (CV) starting from year 3 and break even by year 6. So this type of life insurance (LI) is suitable for everyone, not just those with a lot of free cash! Regarding the question how long to pay the premium, first of all, except the term life, all other LI should be treated as a long term commitment. No one should buy a LI expecting it is only for a short term deal. Find a comfortable amount based on your projected future income and go within your comfortable zone. DON’T STRECH! Having said that, this type of LI has a 70-80% range of flexibility for the annual premium. In this example, this person’s base premium is only about $9K per year, which is the minimum to pay to avoid a policy lapse. The other $40K is flexible and you don’t need to pay if you are short of cash for a year. But paying it is actually greatly benefiting for you because this flexible amount can really generate a lot of CV for you. Also, due to the high CV amount accumulated with such a policy, one can easily use the CV to pay down premium if chosen to do so.  

Now regarding the question whether it is worthy to pay so much premium for so many years, here comes in the mindset aspect that differentiates among people regarding how they manage and grow their wealth. As I have said many times before (but rarely people get the real point, too bad!!), this is not a traditional Whole Life (WL) and the main purpose for it is NOT for the DB. Rather this is a high yield saving type of policy for growing CV as the main purpose. In other words, with this policy, one wants to minimize the DB (which is only a side benefit) but maximize the CV and accordingly the cost for the policy is cut down substantially (e.g. 70-80% less) in comparing to the traditional WL. Only if you can understand this and change your mindset, you can then easily understand why it is a great thing for people to pay as much money as possible and for as long as possible into it, because this becomes virtually a saving account than a LI. As I have already demonstrated before with my own policy experience,  the CV is very liquid for use for any purposes and you can simply treat it as a line of credit for yourself but without paying the interest! I have a lot bigger policies in place and I’m happily paying into it for years by knowing this is a big trunk of cash pile that I can accumulate and use as tax-free money when I go into 70-80s. At the same time, my family is well protected in case something tragic happens, or I need LTC and then my heirs will get all the money leftover tax-free when I’m gone. This is the real thought process and mindset I have for this type of LI although I know very few people including agents can understand it! I often heard people saying life insurance is only for life protection (DB) and should not be mixed with investment and wealth growth. I’m fine if this is your personal choice but I will only laugh if this is considered as a norm for everyone. Regardless you believe or not, buying a LI is an investment as you basically ask the insurance company to invest for you largely in the bond market. And for those more savvy and open-minded people, a properly structured LI can generate a lot of liquid money asset that can be used for any purpose during our life and TAX-FREE! Is it not the ultimate purpose of investment? Definitely yes at least for me!

Finally regarding the question which return you should consider: guaranteed part or the non-guaranteed part. This is really an interesting point that people can easily be confused about. It is very often you hear an agent telling you to believe that IUL (the most hotly promoted product) can generate 8-10% returns based on the historical market performance. And for WL, you should not believe the non-guaranteed part but only look at the guaranteed portion. Really? If we follow this logic, no one should buy any LI except WL actually! My argument is simple: I only know WL has a guaranteed return, not other IL products. For IUL, the 8-10% return is only a projection that is hugely impacted by the stock market and therefore cannot be guaranteed at all. The only guarantee IUL offers is that its premium will for sure increase with age. So if you are only interested or believe in a guaranteed return, buy WL, not IUL or VUL etc. Let me be clear, I’m not against IUL/VUL as they are suitable for some people but definitely not for me due to their uncertainty. It is purely a personal choice! So how should we look at the non-guaranteed return in a WL?  Indeed I cannot guarantee you anything beyond what the company can guarantee. But if you have a good quality company with a long track record of business performance, then very reasonably you can expect the non-guaranteed portion is quite a real return you should take into consideration. Using PennMutual (PM) as an example, they currently offer 4% guaranteed return plus !% floating dividend. So the question comes down if we can believe the 1% dividend that is added into the non-guaranteed projection. If you ask me and you also believe I do have some financial sense, then I can tell you I strongly believe it for two reasons: For one, PM has paid dividends since its inception over 160 years ago and has never missed it. This is the company that has gone through all kinds of challenges but has never let its partners (the policy holders) down in the past 1.5 century. Why should I doubt it now when it is still performing well with their very conservative approach? Then, it is my personal opinion only but I think the bond market is moving into an era in which insurance companies may greatly benefit. Good insurance companies invest most of the money in bonds for safety and the past decade has been very challenging for them as the bond yields have come down relentlessly to its historically low. That’s why many insurance companies are struggling and the dividends have also come down along with the trend. But I think it is very likely the bond yield has reached its bottom and start to enter into a higher yield era. For the bond market, its trend usually lasts 2-3 decades. It has been bear market for bond yields in the last 30 years. If indeed it starts to go up, likely it will go up for 2-3 decades as well. This will be great for insurance companies. Looking at the history for PM, it actually paid up to 10% dividends during the time the bond yields reached its top. For those with mortgage held over 20 years, you must know how high the mortgage rate was 10-20 years ago. Just a side note, higher  bond and mortgage rates will be coming back in the years ahead. That’s why personally I actually think this is the great time to have WL type insurance that pays dividends as likely the dividend yield will go up, not down and it is a much safer bet than the IUL stock market based projection. As I explained in the previous blog, I think the chance is higher that we may move into a long-lasting bear stock market in the next 5-10 years.

Condolences to Dr. Pan (悼念亡君老泮)

We just got sad news that our friend, Dr. Pan, has passed away due to metastatic cancer. Within less than a year of diagnosis, he unfortunately lost his life prematurely. He was just in late 50s. Lao Pan was a very caring man, loved to make and help friends. My condolences to his family for the huge loss! Wish Lao Pao all the best in haven!!

No question it is a huge loss for Lao Pan's family but more sadly it has also been an overwhelming financial drawdown to his family and I somehow feel a bit guilty for the situation they are facing. Lao Pan’s wife was my wife’s good friend. They loved to discuss health topics, e.g. how to maintain good health with diet, exercises, and good life styles. Since Lao Pan was the main bread earner in the family and his wife did not have a full time job, she was also very keen to learn anything related to medical and life insurance. Because she knew that I had done some deep research on life insurance for some time and was working with a good reliable agent for our policy, she wanted me to talk to Lao Pan, hoping I could also make him interested in it and talk to my agent regarding life insurance. But I didn't get a chance to do so. For one reason Lao Pan thought life insurance was just waste of money and would rather save the money in the bank for retirement. I guess this is not something unique to Lao Pan but quite a popular opinion for many people. Also, he simply did not believe much about the information from an agent as for him, it was just a marketing pitch. He certainly had a point as unfortunately most of the information we got from agents is either misleading or misunderstood even by themselves. I thought there was no rush and we had more time to discuss about this. But unfortunately the tragedy hit him suddenly without any early warning. Even worse, in the last few months of his life, they had to spend a great deal of their life saving to meet all the costly expenses related to his treatment and care. His family has suffered not only the loss of him but has also been hit very hard financially! I only wish I could be a bit persistent and "pushy", and maybe Lao Pan could  have changed his mind and had got a good life insurance in place that could have greatly helped them in this crisis!

You may ask, this is kind of rare chances and why bother to worry about it. I used to have a similar mentality and even hated life insurance since I have also been burnt before. But now I realize, after some detailed study and learning, that life insurance is actually a great wealth building and protection vehicle but only if it is set up appropriately. Even better, it is not only a great and efficient vehicle for transferring assets to our next generation, it can also be a great strategy to grow the wealth during our life time that can be used in a tax-free format when we need it. I talked about the great benefits of life insurance before and you can see here. To me, a good and appropriately set up life insurance can do a lot of good things to me and my family during my life time as well as after I’m gone. It is true that life tragedy is extremely rare and most of us will probably never experience it during our life. But just like we need home owner insurance and car insurance, we are not having it to hope disasters will happen ever to us. Rather we just want to make sure, in case such a disaster occurs which is often critical and devastating, we are protected. Same for life insurance as no one can know for sure if and when a tragedy may occur to us. And it is even better with life insurance that there will be no waste at all for the money we put into it as sooner or later, we will not only get all the money back but much more (several times more) will be returned to us either during our life time (as living benefits) or after we are gone (as death benefits). That’s why it is a no-brainer to me now to “save” money in a life insurance policy that can be used for any purposes at any time, just like a saving account. And at the same time, it will really help to protect us if in case we run into some unfortunate tragedy like critical illness or life threatening diseases or car accident etc or even get into some legal troubles. There are simply too many risks out there that are far beyond our control but I feel more comfortable and safe by knowing that I’m well protected with the same money that is equally liquid as the money in a bank account, which would otherwise just be eaten away by inflation and taxes if only sitting in the bank. I feel sorry that I did not discuss too much with Lao Pan about this topic before as I didn’t want him to feel as if I was a bit intrusive to his personal life and choices. But I’d think he would probably feel regret not having some protection in place during his last part of life. That’s why I’d like to take the opportunity to share my thoughts here about the importance of having an appropriate life insurance in place.

I wish all my friends out there wouldn’t feel regret when a critical need is showing up and have sufficient economic support in place when needed, especially if it does not waste anything for having such a plan set up. The most important thing is that it must be set up appropriately to avoid being trapped into something that dose not make economic sense. My suggestion? Be open-minded but also be cautious. Find reliable sources/agents to learn more and you will be greatly rewarded! I hope my friend Lao Pan's tragedy can serve as a wake up call for many of us to seriously think about how to efficiently protect ourselves and family in case a tragedy indeed unfortunately hits us! 

Rare extreme means rare opportunity

As I have discussed many times before, the Street sentiment is a very interesting and weird thing. We see schizophrenic reactions all the time that traders’ mood can change widely within short period of time. But one thing has been proven correct again and again is that, when the sentiment reaches to the extreme point, an opposite trend will start soon. Most recently,I have predicted that the next big move for long term interest should be goingup, not down, due to extremely depressing mood we were seeing a little whileback for interest rates. See what has happened in just a few weeks? A 15% jump of the 10 year interest rate has occurred since my call. I think we are seeing something similar now about Costco (COST).

It has been brutal for COST in the past week or so that 15% of its market cap has been cut off within days. Has anything fundamentally changed for COST  in the past few days? Nope! Yes, the Amazon buyout of Whole Food may have some long term impact on the bottom lines for Costco but Costco is not a fragile business that will only be sitting there for being slaughtered! Rather it has a very reliable and well established business mode that will continue successfully. For sure they will need to seriously think about the challenges from Amazon and adjust accordingly but I have no doubt it will continue to prevail. A couple of years ago, we saw a similar concern when people dumped Walmart stocks like there was no tomorrow anymore for it. See what has happened since then for Walmart? You can bet similar thing will happen also for Costco!

I think the past week of sharp selloff for Costco is way of overreaction and it provides rare opportunity for long term investors like me to accumulate COST. In the past 15 years, such kind of plunges within days have only occurred a few times for COST and each time, it has come back more strongly. No exception this time. You can mark my word!

A euphoric move for NVDA

I like the hype today for NVDA. As I said to friends a couple of days ago, I'm waiting for a good entry point for my short arm of the bearish combo position to short it. Technically it can still go up to $168, the all time high, but still be bearish with a double top. This is the most critical point I'm closely watching to determine if its correction is over. I don't believe it can break up now but more likely another leg down will soon follow. The current move of NVDA is quite similar to what it did back in Feb when it formed a double top as well and then a 20% plunge followed. The daily and weekly momentum is very similarly lined up now to suggest a more severe leg down is quite possible.

I already traded with good profits in shorting NVDA when it went above $160 last time. And I'm setting up another round of short position with a step wise approach to ensure a guaranteed profit regardless if I'm right or wrong. I first sold naked puts of NVDA Aug 150 puts a week ago when it was sold off hard for a few days, expecting a "dead cat bounce" would follow. It indeed did not disappoint me as it's mounting a rather strong bounce in the past few days. My naked puts have already gained 50%+ in just a few days. Today's move of NVDA is quite euphoric to me and has made it rather overbought. While I may be too early to short it and it can still go up towards $168 as discussed above, I don't want to take the risk of giving back my gain from the naked puts. So I added/bought my short arm with Aug 160 puts today. By doing so, I have virtually locked my minimal gain regardless how NVDA will do in the next few weeks. If I'm right and NVDA goes down below $150 by Aug 17, I will win big from the short. If I'm wrong and NVDA continues to go up from here, my gain is capped with about a 20% profit. Certainly no complain even if I'm early or wrong!

The next big blockbusters

For drug companies, blockbusters are defined as those drugs with annual sales over $1 Billion. The goal for each biotech or pharma companies is to have as many blockbusters as possible with obvious reasons. This is especially true for small biotech companies, for which one or two expected blockbusters may make its stock to move 50%, 100% or more overnight. Below is the list I have seen now for the next potential blockbusters from different companies with promising drugs in late stage Phase 3 studies. AbbVie (ABBV) stands out as the top with 4 potential BBs in its pipeline. But keep in mind, BBs are significant for any companies but for big pharma, they do not necessarily mean an immediate significant up-move due to their baseline size. For example, for AbbVie, while 4 BBs are significant for any companies, their combined annual sales as expected “only” add up to about $5-6 B but its current major revenue is heavily relying on one biggest BB ever in the global pharma history, a whopping $16 B drug called Humira but it is close to its patent expiry in the next couple of years. Even all four potential BBs are successful, it is still questionable whether they can effectively compensate for the loss from the competition from the copycats after Humira’s patent protection is gone. So use this list as a start point for doing some of your own research for the companies interesting to you!

Good news

A quick update again about the GW token for cryptocurrency (DC) mining services. First of all, it is continuing to be moving ahead as planned and now the GW token costs $1.10 each, a 5% increase again in terms of its value since my last update two weeks ago, or 10% increase since my first talk at its launch about a month ago. Per its plan, it will increase again in about 2 weeks to $1.15 and to $1.20 during its last 2 weeks of launch. After that, this round of token issuance will be completed. Not sure when it will be re-launched again but it is dependent on the company's mining capacity. It may be offered again for purchase only if the company is expanding its business with more capacity added. So far, no clear indication yet how soon this may occur.


Now for those friends who have joined me for this venture, we have just received good news about the company's business. We are just notified that the demand for the mining services is very strong and the orders that have been placed have already sufficiently met the supplies available for the company. As such, they do not accept new orders anymore from those who don't hold tokens in order to make sure that all the tokens can have business to do. For the token holders, either they are IT savvy that they can use the tokens to rent the company facility to do the digital mining themselves. Or for those IT dummy like me who have no idea at all about DC mining, they can rent out their tokens to those who want to use the services. Per the company's projections, the rental return can be as high as 30-50% per year. With the demand being so high, I feel quite promising for this new venture.




Here is the link to sign up if you also want to explore this opportunity.

It is official

I'm currently traveling in Amalfi, a heaven like coastal city in Italy unbelievably beautiful! So I will be brief today, not about investment directly but also travel-related.



Here is what I said half a year ago: One thing potentially very positive for the Panama real estate is its diplomatic relationship with China. At the moment it has an official relationship with Twain but I think it is just a matter of time that it will turn to the Mainland China. Wait and see what Chinese people will do for chasing the properties here. There could be a Tsunami buying frenzy when they can easily come over here.


If you don't know, now it is official that Panama has indeed cut its tie with Twain and has started its diplomatic relationship with Mainland China. It has also initiated the discussion to be included as a preferred tourist country for China. Wait for the massive influx of both money and businesses originated from China, all of which would be a potent stimulator to the real estate market in Panama!