Here is how a big trouble starts....

“Honey, I saw a great deal with free money for us?”, I told my wife excitedly a while ago.

“Are you kidding me for free money these days?”, she replied.

“Oh, yep!”, I showed her what I saw from an ad. “It said I can walk away with $30K for agreeing to buy a car of $100K”. I’m so excited and I continued: “You see, you want to expand our deck for some time but we haven’t got enough budget for it. Now we will get the free money to do it!!”

So I went to the dealer, signed the purchasing agreement and then I asked for a check for the $30K before I was leaving. My plan was sort of genius, I was talking to myself. As soon as I got the money, I’d postpone the purchasing agreement till I have the money, while still keeping the $30K for my home improvement investment first. I felt really great till I got the answer from the selling manager, “Sir, have you already paid the car?”

“No. Why should I? I thought I could get the incentive first before I pay the car!” I relied quite confidently.

He looked at me like I was coming from the Mar, an extraterrestrial alien. “Sorry, Sir. If you really don’t know yet, this is quite a common sense that your incentive must be coming from your car purchase. Otherwise we would have go bankrupt pretty soon if every car purchaser could get the incentive without paying! I hope you do understand this!!”

By now, I almost fell off my chair as I must be looked extremely stupid without knowing this a real common sense. Even a high school student must know this but not stupid me. Looking around, apparently everyone was trying very hard to keep their laugh and scoff unnoticeable. My god, what a damn foolish dull I’m! I cursed myself while walking out of the dealer office.

If I told you this fabricated story just a few weeks ago, I would have been ridiculed to death I’m sure. No one would ever believe this kind of unbelievable stupidity could ever happen to anyone with just normal mentality and reasoning ability. But unfortunately this has just happened, not at our low class level, but at the top elite level, a rising political star in the Congress. If you still don’t understand what I mean. Here is the story occurring to the famous Amazon. It has withdrawn the plan to build up its 2nd headquarters in New York because it was criticized by the political force lead by the rising political star for the incentive it will get worth about $3 billion for agreeing to build its 2^nd HQ there with an estimated new revenue income of about $28 billion generated for the city. It is considered immoral for the big corporate to get incentive of this much. And it is said the $3 billion could be invested in other areas for the city, like improving the subway system and other community services. What is more bizarre and unbelievable is her continuous public claims after successfully driving away Amazon that  “the collapse of the Amazon deal would free up $3 billion to fix the city’s subways and hire more teachers.” This is exactly a copycat of my faked car purchase story and I just cannot make it up. See here with your own eyes. In other words, she is genuinely believing that the incentive money offered to Amazon is already available for use before it is earned yet. No wonder how many bold promises she has made recently as she indeed thinks there is unlimited money available for the US as US is so rich and the money can be simply minted at wish. Speechless!!

Apart from laughing to death after seeing this really antic and freakish saga that I wouldn’t believe at all if not seeing it myself, I’m becoming really worried now. Not for Amazon of course and not for NY local residents also as many of them seem to also be sided with AOC on this struggle after being brainwashed by such politicians. What I become increasingly worried about is the future of this country. You see, AOC is a rising star and as I said, she may very well be the future Obama for DEM. Her momentum is very strong and whatever she says and promotes these days will attract a lot of followers, especially those young people who are often economically clueless and may be even more dumb than she is. Think about for a moment what is going to happen when more and more such kind of clueless politicians sitting in the Congress and Senate who will decide the future of America?! The future of the US policies and regulations will be based on the fantasy Utopian ideology that the money can indeed be created from the thin air without any hard work involved. The government should support everyone even if they are unwilling to work and anyone who just wants to come to the US legally or illegally. And evil entrepreneurs and businessmen must share their wealth in order to fund all the entitlement programs in the name of supporting the poor and income equality...... These have all sounded like fantasy that wouldn't be real unless pigs could fly, right? But it is becoming more and more a reality now in the US.

Let me make a bold prediction here. The rising star AOC, if indeed successful in her political career, will either bring down the whole DEM party some day due to her more and more freakish ideology, or even worse the whole country some day to push the US to become Venezuela No 2.

I don’t want to make the impression that I become more and more political in this blog. Not at all. I really only want to talk about finance and investment ideas here. But this new development is too important to ignore as it has also huge implications for our financial future. I’m too little to make any meaningful changes of course politically but at least I know what I should do to be prepared for the worst! I always want to structure myself in such a way that if I’m right, I can win a lot or can help myself to avoid disaster. But even if I’m wrong, I won’t lose much or may still gain to some extent. So my advice specific to this worrisome development? Diversify not only in terms of asset classes or sectors but also internationally if possible. Hold enough insurance assets like gold and/or silver. Treat them as money for insurance purpose, not as investment for short term gains. A general advice is to hold gold/silver at an amount of about 5-10% of your total asset, as such kind of amount can really have meaningful protection in case the worst comes true. For myself at least, a well structured cost-effective whole life insurance that won’t be easily touchable by the government's uncontrollable and more and more invasive groping hands（咸猪手). Believe me, our life will become increasingly controlled and meddled by the government, to the extent that is unthinkable at the moment.

Enjoy your life as much as you can, grow your wealth as long as you can, and then be prepared for the worst! This is not an America anymore that promotes freedom and wealth building via hard work. Rather, it is becoming more and more a country that encourages laziness and wealth stealing from others with a government eager to meddle your private life as much as possible. The new wave of socialism is taking momentum now and will become a norm sooner or later. If you like this trend, good luck for you and your wealth! If you dislike it as I do, do something now before it is too late.   

I don’t like the publicity I’m seeing

It may sound strange but it has been demonstrated again and again that publicity can easily kill a bull in investment. Why? Because when there is publicity, likely everyone knows it and chases it as it is hot. So much so that it is often the time the hot trade or investment may have got all those who want to get in and the only ones left are those who want to sell. That’s usually the outcome when something becomes hot. Conversely, when there is not much interest in something or even better a lot of hatred seen with it, that’s usually a good time to see a bottom for the thing that no one wants. After all, everyone who wants to sell may have already sold and the only ones left are those who wants to buy. This is how the market works again and again. Before I tell you what I don’t like to see right now, let me first share with you why I like commodities as a whole as a long term trend. Basically we are seeing the extreme pessimism right now, so much so that even the top professionals are throwing in the towel to give up. According to Bloomberg, a slew of financial-services firms – Morgan Stanley, JPMorgan Chase, Barclays, and Deutsche Bank – have all either cut back or exited commodities trading in recent years. Earlier this month Wall Street giant Goldman Sachs announced that it is cutting back on its commodities business. Reason? Simple... The business uses too much capital for too little profit. In addition, Jamison Capital Partners LP, a $1.5 billion commodity hedge fund, told investors it was closing by the end of January 2018. It followed other big names that have closed in recent months, including Andy Hall’s Astenbeck Capital Management and Texas tycoon T. Boone Pickens.....Calling a bloodbath in the commodity sector at the moment is likely an understatement. But that’s likely good news for those who are patient enough for the game coming to them.

 As contrarian, I’m always interested in extreme pessimism for a potential turning point for uptrend or extreme euphoria for downtrend. Historically we had something similar occurred to commodities. In 1998, Merrill Lynch got OUT of the commodities business because they couldn’t make any money. By that time, the main commodity index had lost half its value since 1980. This turned out to be THE capitulation point, almost the exact bottom of the sector. In the next decade, the commodity index (The Rogers International Commodity Index) soared six times higher. So are we seeing the exact bottom for commodities now? I obviously don’t know. But I bet it is damn close to the bottom if not yet there. Since commodities involves tons of different things and are crazily volatile, I’m currently most interested in the God of commodities, gold! Not only in terms of the cyclicality it may have likely seen its bottom of the multi year severe correction; it is also a good insurance hedge against all types of risks, economic, financial and political ones. So I’m a long term bull for gold as always.
Having said that, I don’t like what I’m seeing in the near term. Gold has moved up quietly for nearly half a year without much notice. But lately all the sudden nearly everyday you hear talking heads speak bullishly for gold and how much they like it. Unfortunately this is not a good sign from the contrarian point of view. Believe or not, bulls are nearly always killed by publicity and I hate that when something I love becomes very popular. With this in mind, I’m expecting some weakening in gold in the next few weeks and hopefully that will silence all the talking heads.

Congrats for 80% gain from S&P

A 20% jump in 2019! This was my bold prediction for S&P for 2019 on the last day of 2018 when S&P was struggling around 2500. I thought I would be laughed to death for such kind of stupidly bullish prediction when the market was in deep depression sentiment-wise. Virtually everyone was thinking how much lower the market could go in the months ahead; so how laughable I was lonely expecting for a substantially bullish market for 2019!! Of course, I'm wrong again and laughably wrong. Not because S&P dipped again since I was talking highs. On the contrary, it has been roared higher straight line for 7 weeks. It has jumped so much in so short time, it has already gained 80% for 2019. So I'm totally wrong as of now in terms of the magnitude of its potential gain for this year. Wait a minute, you must challenge me. Where the 80% gain of S&P came from, you must be wondering. Have I lost my mind again after being so wrong? No I haven't. I'm talking about the annualized return of S&P for 2019. Yes, from its 2500 to nearly 2800, the actual gain is about 12%. But since this fast up move is materialized only within 7 weeks, if you extrapolate it to the whole year for about 52 weeks, the annualized rate would be 80% if the current growth rate continues. I hope all my friends have listened to me and were aggressively buying at the end of last year and early this year. If so, a big CONGRATS TO YOU for being with me for a brave move during the darkest time period. A truly contrarian action not fun for most people to do!
But, this is a big but, after being happy and a respectful pat on your back, you got to ask yourself how many times have you ever seen S&P or any US market index gained 80% in a year? None,  nichts,  nenio, nulla,  neitt! Maybe I'm too ignorant of not knowing it. So show me the history if it was ever seen! Of course, you may say, this time may be different. Indeed it is possible but equal to zero chance in my book if you ask me. So statistically the chance is extremely high that the market cannot simply go up without a significant pull back. The question is when, not if. So at the moment when the sentiment is blown to the extreme side (and it is on the euphoric side this time), let me be a contrarian again by taking the risk of being laughed once more to call for a downside risk now. Yes, I cannot tell exactly when the pull back will occur but it may happen any time. As I said many times before, the market has a habit to punish the most people the most! If you think you can time the market for the exact top, sure to stay on to enjoy every moment of the up move! For most people, I think it would be better to at least take some chips off the table for short-term trading positions. When the market decides to strike, it will do so very swiftly without any notice.
Fundamentally I must say I'm afraid the market has used up its major ammunitions too fast too soon. If you recalled what I wrote back then to support my 20% gain prediction, there are two major bullish movements that I thought should push the market higher in 2019. One is the Fed transition from hawkish to dovish in their policy. The other is the US-China trade deal that will move in the right direction. For the first one, while I was very confident the Fed would yield to the market, honestly I didn't expect Powell would change his tone so much so fast. Comparing his speeches in the past few months or so, you wouldn't believe it was from the same Fed Chair talking about the same thing. So I very much underestimated the Fed's speed of dovish transition and the market has got fuel for the fire. Then for the trade deal with China. No doubt it is moving towards the direction as expected. As I said, the most likely scenario should be that major progress has been made and Trump will call off the immediate tariff hike again to allow a bit more time to work out the final deal. It seems this is becoming increasingly the likely outcome for now. So both of the tailwinds are being blowing in full speed right now to push the market flying like crazy. It is indeed feeling like there is no way for the market to back down. But did you have a similar but opposite feeling that there seemed no way for the market to go up about two months ago? Just think about it and you may more easily understand the market sentiment can change very fast from one extreme to the other. Don't ever ever believe it will stay on one extreme forever. Treat the market just like a human being. He also needs a rest in a Marathon running. Too fast running for a Marathon cannot never make him a winner. It will be healthier for him to calm down a bit and take some rest before running fast again.
Hope you can better understand this cold water writing of mine by now. I'm not bearish at all for this year. I'm more confident than ever to believe that we will see new highs in 2019. But not now and not in the near future without a much needed severe correction first. The more fast moving up now, the bigger drawdown we will see in the next few weeks. That's what I'm believing the most for now!!      

Law is law - Legal insider trading

I’m very undereducated in terms of history and for my generation, we really did not learn much useful regarding history anyway at school. You can even call it all rubbish education.  By the way, my son is really good at history though, even much better than I’m for the Chinese history although he did not attend one day school in China. Shame on me! 😝 So I rarely talk about history here. But I’m reading a lot these days and I just ran into something interesting. So thought to share with you about this historical information related to investing.

I’m sure everyone knows the famous JFK, right? But do you know anything about this father, especially that he was very rich? Any idea how he became so rich? I bet you don’t know. So let me share with you the history of his fortunate making. The information below is from a source I just read and not my own writing at all:

And it may surprise many readers to learn this, but JFK’s dear old dad actually built the family fortune from insider trading.

In 1919, Joe Kennedy joined the brokerage firm Hayden, Stone & Co. and quickly became an expert in the then-unregulated stock market. He got rich using tactics that are now considered insider trading and market manipulation.

Among other things, he bribed reporters to spread false stories in an information-starved age to drive prices up for his investment pool. He also participated in organized “bear raids” to crush stock prices. A bear raid is when a group of short sellers collude to sell a stock, smear the company, and then profit when the share price falls.

And legend has it that in 1929, Kennedy got out of the crazed, speculation-fueled market when he got a stock tip from a shoeshine boy. He then heavily shorted the market before the Great Depression and made a $4 million fortune [about $60 million today].

He used that fortune to invest in real estate, multiplying his wealth even more. His net worth grew to $180 million—which is about $3.4 billion today.

You’d think he would’ve been punished for all this… Instead, he was rewarded. How so?

As if all that wealth from his insider trading wasn’t enough, President Franklin D. Roosevelt appointed Joe Kennedy to the newly created Securities and Exchange Commission [SEC] in 1934. Not long after, Kennedy was named the SEC’s first chairman.

When asked why he did it, FDR supposedly said, “It takes a thief to catch a thief.”

Kennedy then went on to outlaw the very practices that made him rich.

Pretty interesting and very hypocritical, right? You may think I’m going to criticize him for his real inside trading, which has put a lot of people in jail nowadays. Actually I must say he was a very legally compliant guy per the law at his time and good for him to use the legal loophole to make his fortunate. Indeed, by today’s standards, his action was quite disgusting, immoral, and definitely illegal! Similar kind of behavior by the Tesla genius Musk has cost him $20 million and the board chair position recently. But I must say, law is law. Back then, there was no law prohibiting such kind of inside trading and he did have the right to do what he was doing for making his fortunate. Why should anyone complain about it? That’s why I found quite funny these day, seeing people constantly complaining that Trump has not paid enough tax proportionate to his wealth. Unless he has done anything illegal by invading taxes, which is not you and me can judge about, what's wrong if he has done everything possible by minimizing his tax via legally allowed loopholes or whatever you may call it? Just ask yourself if you are also doing exactly the same thing in your annual tax filing? Don’t tell me you are not; then you must be a blockhead or a big liar! I’m certainly trying my best to do so and I have nothing to feel shamed about!! Then I also keep seeing people criticizing him being bankrupted several times in the past and considering it immoral. Again, for any business owner, his top priority and obligation are to protect the shareholders’ interest as much as possible within the legal framework. When a business is indeed in big trouble, bankruptcy via Chapter 11 is often an effective way to potentially save the business and may allow it to revive. There is nothing illegal here and I don’t see anything immoral as well per the current business standards. If anyone insisting so, then I have to say he or she is just a total ignoramus and don’t know what they are talking about, period!  

I have digressed a bit I know and now back to the topic of insider trading. It is now totally illegal and no one should ever try. Having said that, there is a way to do something similar to “insider trading” but legally! How so? Just Follow the lead of insider buying. Now let me ask you, do you trust insiders like CEO, CFO or board directors of a company or rather trust more analysts who are often clueless, when talking about the business prospects? I don’t know you but I’m certainly going with the former. What do you think about their business when these kind of very top managers are aggressively buying their own stocks? As the Street cliché goes, insiders can sell for various reasons nothing to do with their business, but there is only one reason for them to buy: betting higher stock prices when they feel the business is doing well and the stock price is at discount. You may ask how they can buy without violating the law? Well, there are certain blackout periods when it is taboo for them to buy or sell, e.g. around the time of earnings report or a major submission or approval (for biotech), etc. But they are free to buy or sell when there is no such kind of conflict of interest. Remember two years ago the JPM CEO, Dimon, famously publically announced his buying of $20 million worth of the JP stock? Looking back, it marked the exact bottom of the stock and since then it has jumped 40%. So if you can follow their footstep to also buy when they are aggressively buying, the chance is high that you may be doing well more often than not. Of course most of such insider buying won’t be publically announced like Dimon did. However there is a way to look into it. By law, insider trading by senior management must do Form 4 filings filed with the U.S. Securities and Exchange Commission (SEC) within days. And this information is available to the public. Of course it is easier said than done to look into such kind of information and it is not for everyone for sure to be able to correctly locate and appropriately digest the information. But if you happen to be able to follow the lead of insider buying, don’t waste it. Give you one example. From my source, I learnt that recently the famous discount broker,  E-Trade (ETFC) Executive Chairman Rodger Lawson, Chief Financial Officer Michael Pizzi and Director Joshua Weinreich all have aggressively accumulating their own stocks recently. While significant buying from the top insiders like CEO/CFO does not necessarily mean it is always the best timing to buy the stock, at least it is a demonstration that those who really know the business are considering the current valuation of the stock is great and they expect the stock price will further grow from here. In other words, while there is no guarantee the price they have paid is the lowest or the stock price won’t further go down, most often than not, the stock price will go up as a long term trend from the time they bought.  So if you like the idea, do your own homework and decide if it is a right one for you. I just hope my writing here will provide some food for thought for you, an idea where you may find some good values in this volatile market.

Slow moving turtles may help fight for a fast moving big human crisis

Our human being is facing a lot crises. No, not the border crisis Trump just declared. 🤠Certainly not any manufactured crisis that someone  is calling. 😲😲I’m talking about something health-related. If you are not aware of yet, one big crisis we are witnessing is the diabetes crisis. Here is the alarming stats from the government: According to the Centers for Disease Control and Prevention (CDC), 30.3 million people—or 9.4 % of the U.S. population—had diabetes in 2015, and in the same year, about 1.5 million new cases of diabetes were diagnosed among adults age 18 or older. The CDC also estimates that 33.9% of U.S. adults had prediabetes. The economic burden of diabetes is massive. The American Diabetes Association (ADA) estimates that the cost of diagnosed diabetes in the U.S. hit $327 billion in 2017, with reduced productivity costing another $90 billion (Diabetes Care 2018;41:917-928).(You can see more details in this report: Facing the Diabetes Crisis).

One of the most effective treatment is insulin, a protein that we normally should produce to balance the glucose levels but diabetic patients often lack, especially those with so-called type I diabetes. Although there are many other effective antidiabetic medications that have been invented in the past decades, insulin remains an unbeatable effective core therapy for this terrible life long disease. For those not in the medical field, the biggest drawback for insulin is the way how it must be used. It is a painful injection every day the patient has to do. If it is just a short term injection, it is not a big deal, right? But it is a life long routine patients have to endure. For years, scientists have been trying to develop a new formulation like a pill or inhalant that may relieve patients from the painful treatment but all fail. Why so difficult you may ask? Well, it is all boggled down to the nature of insulin, that is it is a protein. As a protein, it is a big molecule that cannot be simply absorbed by our intestine. Instead it must be digested and downgraded into small molecule pieces that can pass through the intestinal wall and therefore it becomes useless after being absorbed into the blood. For inhalation, actually there is an insulin inhalation product already approved by the FDA but unfortunately it has been a widely disappointment in terms of usage, primarily due to the fact that it is very difficult to control the blood level from inhalation. The insulin blood level is very critical as it can easily cause disaster if not well controlled such as dangerous hypoglycemia with too much insulin. If I’m not mistaken, this is the major issue for the inhalation insulin. So if there is any breakthrough that will allow easy intake of insulin without relying on injection, that could be revolutionary given the rampant crisis. I’m happy to say that we may see a glimpse of light now. Scientists are developing an oral insulin delivery system.  See below what was reported in Science with a genius idea that will basically still inject insulin but within the stomach. If successful, patients may get stable doses of insulin as the current skin injections but without pain.

The pill is about the size of a blueberry and contains a small needle made of insulin. Once it reaches the stomach, it adjusts its orientation to ensure contact with stomach tissue before injecting the medicine. In tests in rats and pigs, the drug successfully lowered blood sugar to levels similar to those seen with insulin injections. The team reported the results in Science.

Interestingly, this idea was inspired by tortoises actually. The key to success is to make sure the tiny needle can always position in such a way to make the injection directly into the stomach wall. Turtles are well known to able to turn around to position properly regardless what happens, even in an upside down position. That’s why scientists want to mimic for this new insulin delivery system. It looks promising at least in the animal testing. Of course it is still a long way to go before it can be finally proved effective in humans but I think the prospect is bright!

If indeed it proves to be successful, which company may benefit the most? Novo Nordisk (NVO), the company that sponsors the development of this technology. If you are not yet aware, NVO is a pure player for insulin development and actually I cannot think about any other well-established pharma that is so successful for decades but solely based on one product, insulin! That also speaks for the fact that how critical insulin is for this life long disease as the need is always there and growing as the crisis is deepening. NVO is a very well managed drug company and its business has been booming for decades. More attractively to me is the fact that NVO is also a great dividend growth stock. In the past two years though, NVO has apparently run against its bottleneck and its growth has been slowing down significantly. But I think it is temporary hiccup and great business can always find its way to turn challenges around. I have good faith in NVO for its long term. This new development of the innovative technology shows again how NVO is working hard to overcome the obstacles it is facing. If successful, it will be a great stride for it and greatly benefit the company while helping diabetic patients in a revolutionary way. Even if not, it will also trying to innovate in other ways to continue its mission to help fight for this human crisis.

More doubles from shorts?

Hope you are not surprised for the reversal today! Actually I was expecting for a total reversal, i.e. opening high in green but closing low in red. It didn't happen today but S&P lost more than a half from its intraday high by closing. Maybe I'm reading too much into it but I do think the 7 week long rally is likely coming to its end. We may have seen the capitulation buy yesterday when the final bunch of people still on the sideline before yesterday finally threw in the towel and rushed to buy as they felt they would be totally left behind if not buying now. Likely a big mistake and sorrow for them!!

Indeed it is difficult to be bearish these days as all you hear about is the music of going up and up. That's usually the time one needs to be extremely cautious if you have the urge of FOMO. It is almost always ended up badly regardless how great you may feel initially. Such kind of gain can evaporate very quickly unless you are nimble enough for daily type of trading. But for most traders with a bit longer timeframe, following the trend based on TA signals is often a good bet. As a general advice, it is much easier to buy when everyone is dumping and sell when everyone is chasing. That's how you can have a higher chance to buy low and sell high. Just a real example of mine. FDX was hit hard late Dec due to poor earnings but to me it was clearly oversold when it crashed to $150ish. So it was really easy to buy low for FDX a few weeks ago when no one was interested. Now about 7 weeks later, it has jumped 20% higher and it seems everyone is chasing it now. But I think near term there is likely not much further higher to go but a higher chance of a correction. So I closed my call options with 150% profit now and placed a bearish put option now. It is easier to sell now as everyone is buying. But we may see a totally different sentiment in a few weeks from now. Virtually all the oversold stocks in Dec are behaving like that right now. Similar to the overall market, they are either bumping against the 50 DMA or 200 DMA, the strong resistance or the downtrend line. Given how much stretched to the upside extreme the whole market is with a very swift shift of the sentiment to the euphoric side, the contrarian me tells me it is a much better time to bet for the downside now. So I'm aggressive in opening up more and more short positions when the market is  just pushing higher and higher. I won't be surprised to see many doubles in a few weeks from now, similar to my FDX trade but in the opposite direction. You may think I have lost my mind by shorting a lot of great stocks like INTC, CSCO, MSFT, NFLX, XOM or even SMH as a whole. No, I don't dislike them and actually like them all. That's why I opened long positions for many of them later Dec, aiming for a multi-month long trade. But the Fed drastic change of tone from hawkish to dovish has moved up the market sentiment tremendously, but too much too soon to me. That's why I don't trust the sustainability of this 7 weeks long uptrend and want to lock in many good profits that I was not expecting to come so soon so fast.  And for now, I don't like their TAs for the near term. The beauty of my bearish bet now with low volatility is that it does not cost me much to short them. If I'm wrong (which is certainly possible), so be it for the small amount loss. But if I'm right as I'm confident right now, they can easily double or even higher like 5-10 times more for my bets.  

Don't get me wrong. I'm not bearish for the market at all in the longer term and I'm still expecting a new high later this year as I said weeks ago when everyone was outcrying and panicky (didn't I say to expect a 20% up for 2019 in my very last blog in 2018?). But I don't believe a straight-line up, especially under the extreme euphoric mood. 

JUST BE CAUTIOUS!!

FED has effectively been broken!

Let me first share with you what I have seen about the total debt stats: “Over the past 10 years, corporations, consumers, and even governments themselves have taken advantage of record-low interest rates to borrow like never before. Here in the U.S., total government debt has doubled to nearly $22 trillion over that time. Corporate debt now totals more than $9 trillion, an all-time record in both nominal terms and as a percentage of U.S. GDP. And households now owe more than $13.5 trillion, including a record $4 trillion in consumer debt like auto and student loans.”

If we add unfunded entitlement programs like Social Security, Medicare, and Medicaid, we are talking about mindboggling numbers estimated over $200 trillion. But no one seems worried about debt at all. Indeed, why bothered? US dollar is the global reserved currency and as such the US government can print any amount it wants and all the other countries have to share the burden. We have the Fed standing behind effectively babysitting to save us each time there is any sign of crisis. But can this continue forever? Here is a good note I got from a friend about this topic: “The truth is that our financial system is completely addicted to debt, and needs to add more and more of it to keep everything from collapsing. We need low rates and loose monetary conditions for that to happen. We're many cycles into this multidecade debt bubble now, and it's getting harder to maintain. As I wrote a few weeks ago, the Fed has met nearly every major market correction in the past three decades with drastic measures to "save" the economy. Well, all that economy-saving has left our economy weak and fragile, burdened by unpayable debt loads.”

So basically the Fed rescue has become less and less effective and it needs to print more and more money to do so. When the Federal Reserve bailed out banks, it lent them untold gobs of money. It also bought a lot of their worst mortgage bonds. Now the effect of these assets having on the Fed's balance sheet is beginning to show up, and it is not pretty at all. . 

Alex J. Pollock of R Street Institute has done an excellent job assessing the implications:

The Fed disclosed in December that it had $66 billion in unrealized losses on its portfolio of long-term mortgage securities and bonds (its quantitative easing, or QE, investments), as of the end of September. Now, $66 billion is a big number - in fact, it is equal to 170% of the Fed's capital. It means on a mark-to-market basis, the Fed had a net worth of negative $27 billion. If interest rates keep rising, the unrealized loss will keep getting bigger and the marked-to-market net worth will keep getting more negative. The net worth effect is accentuated because the Fed is so highly leveraged: Its leverage ratio is more than 100 to 1. If long-term interest rates rise by one percentage point, I estimate, using reasonable guesses at durations, the Fed's mark-to-market loss would grow by $200 billion more.

We can say the Fed is effectively broken by now! The situation will only become worse as the time passes by. Eventually it will come to the point that even Fed cannot save us anymore. Then we will see the moment of Greece, Portugal, Italy or even Venezuela! After all, there is no free lunch and the financial system has its own intrinsic rules that must be satisfied. If printing money can really work, why bother to work for anyone? The reserve currency status can indeed help US tremendously to delay the reckoning day but eventually the reckoning day will come and the debt must be paid! Is there any chance the ever increasing debt can be paid by now?

I’m not smart enough to figure out where is an easy way out. A tsunami financial crisis is inevitable in my mind. It is not if but just when! Of course nothing is imminent but risk is increasing every day, especially when the long term interest rates start to substantially move up. We are not there yet but it will come probably much sooner than most people would think. No rush but be prepared starting from now. Buying some gold is one easy way to be prepared for such a dire situation! You may not believe even governments around the world has become increasingly uneasy about the debt situation and has been actively buying gold as well: Central Banks Buy More Gold In 2018 Than Any Year Since 1967! Just think about it!!

It is difficult to be more bearish

“Conversely, I would suggest you to think about something that is perceived deadly risky and no one is interested in it...... I think chance is high that we may see higher stock prices in ......in the next couple of months than lower.”

 

Recall what is this about that I talked about a few months ago? Back then, nothing was more bearish than this one. Still no clue? Well, it is about China! Check here see what I said in more details. In a nutshell, China is facing a seemingly deadly risk with fast slowing economy that is devastated greatly the ongoing US-China trade “war”. The headline news has been nothing but bad and it is still so. Sentiment-wise, I don’t think there is anything improving till now as China is still facing a mountain of issues that are difficult to manage. The thing is extreme sentiment either end is usually a contrarian indicator. When the sentiment is so badly bearish in this case for China, it has discounted almost all the bad news and the final selloff at that time is usually an exhaustive capitulation to trigger a bottom to be made.  This appears to be the case for Chinese stocks right now. Granted, since I posted my blog in Sep, the Chinese stocks continued to go down a bit and therefore it was not the exact bottom at that time. So timing wise I was a bit earlier as usual. I have been reminded again and again by friends that no one can time the market perfectly. I have certainly got it and actually totally agree with it. But if you think TA is simply about timing the market, I think there is some misunderstanding, at least for me. While it seems TA is trying to time the market, in reality and more precisly it is timing the sentiment extremes and then offer the most likely probability for the next major move. So you don’t need to be perfect in timing unless it is day trading, which is similar to long term value investment where you time the valuation instead of the exact stock price. Similarly no one can time exactly the lowest valuation for anything regardless how much analysis has been done. Back to the China idea, 3 months ago I thought it was in its bottoming process and the chance was high for higher prices in a few months. This is apparently the case by now as FXI has clearly broken out to the upside from its year-long downtrend line. More importantly there is another more bullish sign that I don’t think many people are noticing at all. You see, for the whole past year, China has been beaten down badly by the worrisome “trade war” and as such, the Chinese stock market has been overwhelmingly underperformed the US market till.....Nov! Quietly the tidal wave has changed since late last year and as you can see below, FXI has significantly outperformed S&P in the past 3 months. Don’t ignore this quite bullish sign, folks! This has reminded me the situation for the Brazil market over a year ago when the sentiment for it could not be more bearish and everyone was dumping it. Then without notice, it has revived and shot up in the past year, greatly outperforming the US market. Anyone who can spot such a turning point is well rewarded for sure by now! I think the Chinese stock market is at such kind of juncture and is poised for a major breakout from here. The near term catalyst for its next let up is obviously a concrete trade deal by end Feb. While no one can be sure if it will happen, the market is anticipating a deal already and so do I.  You may argue not to rush for a quick conclusion as even if there is a deal, it may not be a great deal as what Trump has hoped for. Indeed I also don’t expect a deal that will fundamentally changed China’s political and economic system. But at this point, what kind of deal means nothing really to the market. As long as there is a deal, the markets will be happy and shoot up significantly both sides. Not convinced? Just wait and see!

 

Be clear, this is a more risky speculation than usual as there is a lot of headline news that can easily swing the direction. We just got a taste yesterday when the market dropped severely due to the news that Trump-Xi meeting may not be held later this month. Believe me, China is making great efforts in trying to turn around the dire situation. If you dig deeper, underneath the bad news, there are many positive developments in China that will prove to be very positive for its economy moving forward. More liquidity from the Central Bank, relaxing tax rules, new legislation for opening up more for foreign investment......While it looks still a possibility that a final deal may not be sealed off by Mar 1, I think the chance is high that Trump may postpone the tariff hike based on the real progress in the negotiation that may need a bit more time to work out the final details.

 

While I won’t take it as a long term investment as of now, at least for the next half a year or longer, I’m bullish for China. As always, be mindful of the volatility that is for sure to be high for it! 

    

The grave dancer is dancing again

Have you heard Sam Zell? I bet not many of you have heard him but you should if you are really interested in investment. He has got a scary nickname: The Grave Dancer. Let me first share with you a small story about him (a smart Jewish): While attending Hebrew school in Chicago one day, the young Zell discovered Playboy magazines for sale at a train station newsstand. He bought them for 50 cents each, then sold them to his friends in the suburbs for $3 apiece. That’s a 500% return. This is likely his first lesson about making money based on the uneven supply and demand equation! And that experience must have shaped up his life long investment philosophy!!

So who is Zell?  Here is the brief introduction who Zell is:

Zell is a real estate mogul and self-made billionaire. He made a fortune buying property for pennies on the dollar during recessions in the 1970s and 1990s. This earned him the nickname “The Grave Dancer.”

Zell was also one of the only real estate gurus to spot the last property bubble and get out before it popped. In February 2007, he sold $23 billion worth of office buildings. U.S. commercial property prices peaked nine months later and went on to plunge 42%.

So what did you get from the above intro on him? A very smart and successful investor and seemingly a very lucky guy as well, right? You see, he can always spot almost the exact bottom and top too during his life. Don’t just take it as a jest for fun about his nickname but try to really understand why he has got such a dreadful name. Basically it means he can pick up something everyone else would consider as dead and buried in the grave already, but he can see the value in it and buy at extreme discount. This is kind of person you really should follow, not FOMO by chasing the herd on the daily basis for what everyone is buying. So whenever I hear Zell is buying, my ears perk up. I just learned Zell is buying something now, which happens to be what I have been buying for some time. “For the first time in my life, I bought gold because it is a good hedge,” Sam Zell, the founder of Equity Group Investments, said in a Bloomberg TV interview. “The amount of capital being put into new gold mines is almost nonexistent. All of the money is being used to buy up rivals. Go back to supply and demand… Supplyis shrinking, and that’s going to have a positive impact on the price.”  

Yes, it is gold! For anyone following my for some time, they must know I’m a gold bug with strong belief in this shining metal. I started to buy gold about 50% below the current level many years ago. Although you can say it is painful to see it dropped by more than half from its peak, I have never lost my faith in it. I really don’t care even if it goes down further from here as gold is an insurance for me and I don’t need to rely on it for profit. But if the worst indeed comes, gold can save me well for sure. The beauty of holding gold is that it has never lost its buying power regardless how its nominal price fluctuates.  As such, it is a real money no one can create it from the thin air like all the fiat currencies.  I think right now is a great time to buy gold for several reasons. For one, after 5 years or so downtrend, gold has likely found its bottom by now. It is basically dead for many years with very few people interested in it, something in the grave. That’s why the grave dancer, Zell, starts to dance again in grabbing it now. Then gold is a great hedge for grave risks worldwide, especially geopolitical risks. As we all know, our world is in a full mess all around regardless where you are looking at. While there is no way to know exactly when and what will hit us hard, the likelihood is high that we may see some major global crisis natural or human-made popping up at any time. Just like a house insurance that can help to protect unexpected disasters, gold has a similar function for wealth protection. Last but not least, as I alluded to yesterday, gold can also offer protection for major financial crisis that in my opinion will come to hit us for sure in the future. In addition to the financial crisis that is doomed to come at some point of time due to the extremely inflated debt bubble all over the world, the dreadful trend of extreme leftism more and more likely taking over and dominating the US politics will inevitably push the country down to the path of Venezuela. The most scary part of this trend is that extreme socialism policies are just like additive pills, which taste great but virtually impossible to be removed when already swallowed. It will eventually destroy the whole body just as what we have witnessed in Venezuela. If that happens, gold will be one of very few only real assets that can firmly stand to save us.

The best part? I can be totally wrong and none of the above grave scenarios will ever happen. But gold will still keep its value for another thousand years to come.  Before I finish, let me just share with you a quote from Billionaire Bill Bonner about gold:

Gold is a hedge against falling stock prices. And falling bond prices. And falling bitcoin prices. And falling real estate prices. And a falling dollar. And falling hopes, illusions, and myths of all sorts.

There is a time for everything under heaven. A time to believe. And a time to restrain from embracing crackpot ideas. In short, we believe we have entered an Era of Busted Dreams. Gold is a hedge against all of them.

The joke of the century

“The world will end in 12 years!”

If I were looking at your eyes making such a very serious claim, would you believe me? I bet you wouldn’t. No one will, I’m sure!! That’s why I have to say this is the JOKE of the CENTURY!!! And I hope you will agree with me.

 

You may think I have fabricated the joke myself but I didn’t. It is a statement made by a rising DEM star in the US politics, AOC. By looking at her very innocent eyes when claiming this, I’m sure she is deadly serious about this and she indeed believes it. More importantly she wants you and me to believe it as well. Now, I’m not going to talk politics here as regardless which side you belong to, it is your right and none of my business. So why I bring this up here? Because it is very much relevant to our financial future and if we are not well prepared, we may suffer badly as the result. At least I firmly believe so and therefore I’d like to share my thoughts on it here.

 

If this is a joke from a general young guy, I won’t pay any attention to it. It is common to hear this kind of mindless claims from various people around us and why be bothered by it! But AOC is not a general guy anymore. As I said, she is a rising star with real momentum that may become a significant political force in the DC. She has a huge followers base now and it may very well become the reality that she could be the next DEM leader in the not so long future. So we got to be serious about whatever she is saying now as her thoughts may become policies someday. That’s the most scary part I’m seeing. So why the joke itself is so important beyond just giving a laugh? The end of world claim she made was in the context of global climate changes and she wants to spend whatever it costs to tackle the climate change in order to save our world! She is also the one claiming that US is so rich that we can afford to allow anyone who wants to come to the country to support them. She wants to have a Medicare for everyone, a universal basic income, high tax (70%) on the rich....... You just use your wildest imagination to think about what she wants to do to help save the world. You see, in her mind, since our world will end in 12 years, why should we so much care about cost and money anymore! We are just too low to even think about this. So she is moving full speed ahead to spread out her ideology and she appears very successful in getting attention nowadays. That’s why I’m scared. I think there is a good chance she may become the next Obama but with more extreme left socialism ideology. Since their extreme ideology is so popular among millennials, don’t be surprised to see her or the alike in the White House to implement the extreme socialism policies in the not so long future. Then just watch what will happen to the US! Below I’m just sharing with you what has happened to the Venezuela following years of extreme leftist policies. You should see a lot of similarities between what was implemented there leading to the worst humanitarian tragedy in the human history and what may be coming to the US. Don’t take it for granted that such a disaster won’t ever occur to the US. As long as it is a human made calamity, it can occur to any country with the right conditions in place.  Unfortunately in my humble opinion we are seeing such kind of conditions shaping up! Tomorrow I’m going to share with you one idea that can help greatly just in case the worst indeed comes true to some extent. Stay tuned!  

委内瑞拉已故总统查韦斯 推行所谓的查韦斯主义，主要是三条：第一，把石油、煤矿、土地等重要的生产资料全部收归国有化；第二，大力发展国有企业，限制外来资本和民营资本的发展；第三，推行高福利，公民的医疗、教育、养老全部由国家承担，查韦斯甚至宣布要给每个穷人发一幢别墅。

在这理想的乌托邦进程中，委内瑞拉的国民经济日渐萎缩，政府能干的事情就是两件，第一开动印钞机；第二就是高度依赖资源的输出，造成石油的诅咒。最终全民买单，民不聊生。
根据国际货币基金组织的预测，2018年委内瑞拉的GDP实际负增长18%，这意味着它已经连续三年出现超过10%的负增长。除此之外，国际货币基金组织还预估2018年委内瑞拉的通胀率会突破1万倍，到2019年年底，这一数字将会超过10万倍，创下全球货币史上的一个新的纪录。