How to turn mushroom into iron?

I’m nearly 100% sure that you have never heard about his name, Herman Knaust. He was called “the mushroom king” during his early business life. Indeed, he was the largest grower and canner of mushrooms in the world back in 1930s. His business was so large and booming, he ran out of space and he was looking for a much larger space for his mushroom planting. Thanks to the Great Depression in the 30s last century, he got what he wanted, a large, dark, cool, cave-like structure from an abandoned iron ore mine in the south of Albany, New York. The price he paid? $9000 in total! Even factored in the high inflation growth during the past century, it was still a fire sale price, an entire mining area for less than $10K. The area was so large that was much more than he really needed for his mushroom growing business, he got a genius idea. That is the real interesting story I want to tell you today, not how he grew his mushroom business into the moon but rather how he turned his mushroom into iron via this abandoned iron mine.

Of course, no one has the magic to really transform mushroom to iron chemically but at least by name, he was successfully doing so, turning a low profit margin mushroom business into a decades long high profit margin business. Again, most of you likely have never heard about this company but indirectly via your companies (if you are working) you may be unknowingly using its services. I’m talking about the company called Iron Mountain (IRM). If you indeed have never heard about it, can you guess what its business is? You probably will never guess it right also, not me included when I initially heard about it! No kidding, it sounds really odd for its business, record archiving services, with the name. I was also wondering where this name came from but now I understand why. While the iron mine was perfect for mushroom growing, it was too large for Knaust and that’s why it triggered him to think about what to do for the extra space and then a genius idea hit him. Since the mine with bunkers were so strongly built up and so secured as it could even survive an atomic attack, why not rent his space to companies for archiving records? What a brainiac! Long story short, he was really successful as he eventually ditched the mushroom business entirely and offered the whole space to New York companies for record archiving. It makes a lot of sense now for me why he chose Iron Mountain for the company’s name. More than 80 years later, IRM is not a local company anymore. Actually it is a globally dominating company in record archiving services for more than 230,000 modern offices. Today, IRM makes $4.2 billion a year in revenue worldwide, which could never be made via Knaust’s original mushroom business!

It is enough for today for the introduction and I will come back more for IRM later.  

A perfect week

As it is always said, trading is an art not science because no one can have any certainty on any short-term market movement. Having said that, sometime it also requires some logic thinking in order to prevail. This week is a perfect example with some perfect trading I have made. You see, we entered this week with a widespread understanding that there would be a lot of uncertainty in the coming week due to the Trump-Xi summit tomorrow that is closely watched by the whole world. No one can be sure what the result will be and virtually everyone may agree that it will likely be a binary event, namely a disaster for the market if the meeting turns out to be a total failure or a good rally if it turns out to be a successful meeting (either with full trade deal agreed upon which is very unlikely or an agreement to continue to negotiate with good faith with a set deadline which is more likely in my opinion). With this kind of very clear uncertainty in place, just with a little bit logic we should be able to guess how the market in general should perform this week. Logically professionals won’t bet heavily in either direction, ie. too bullish which may turn out to be a disaster or too bearish which may miss a strong rally opportunity. That’s why I told my group that this week we would likely see a tight range bounded market, especially I didn’t see a chance for a strong rally towards the end of the week. For traders, I said selling calls and selling puts for a specific range would likely be a profitable strategy. I specifically offered two examples for my friends:

• For Amazon that started the week around S1910ish, I didn’t see a high chance for it to go much beyond $1920. So selling its weekly calls for $1920 could be a good idea.
• For Apple that started the week around $200, I also didn’t see much upside room for this week based on its short-term TA, so selling its weekly $200 calls was also a reasonable trading idea.

I put my money where my mouth is and it turns out both are indeed very profitable trades for the week! For Amazon, it was even better for me as it nosedived on Tue, dropping below $1880 for whatever reasons, which made my $1920 call shorting position (bearish spread) immediately very profitable. It would be silly to stay with it when about 80% of the potential max gain was already made in just one day. As a trader, I just couldn’t resist any potential opportunity either direction. As I said regarding my range bound logic, I didn’t believe Amazon would just crash without any specific reason for the week and its TA suggested it should bounce back in the next few days, So I made a weekly put selling for Amazon, betting it would recovered from the Tue harsh selling. Lucky me, it turned out to be another very profitable trade. So I made some good money from Amazon on both directions, in addition to the profitable Apple bearish trade.   

So what’s next? Well as I said, no one has a crystal ball but I’m willing to bet the chance is higher for a more positive than negative result from the Trump-Xi summit over the weekend. If so, we will likely see a good relief rally. This is what I’m more leaning towards for next week. Let’s say it turns out to be indeed a positive result and we do get a substantial rally next week or even after, can we just be relaxed to think that good days are ahead for stocks? Not so fast and history has told us we may soon see some quite nasty selloff in the next two months. But that’s the topic for another day. Let’s first enjoy the weekend and watch what will happen in Japan tomorrow.

By the way, not sure if anyone followed my lead to short ROKU (see my post last week on it). If so, you should pat yourself on the back as it has started almost immediately a nosedive with a haircut about 15% in just one week. While I don’t think its correction is already done, such a fast decline could trigger some bottom-fishing FOMO and I won’t be surprised to see some rally attempt in the next week or two, especially if the whole market is cheering with a good relief rally. I closed my short position for ROKU for now with about half of the max gain I was expecting. Depending on how it may behavior from here, I may start to short it again!

Even Buffett was scammed!

I don’t know if anyone has paid attention to this news. Probably not many but it’s worth your attention (info from other sources):

Founded in 2008, DC Solar touted its ability to provide “very favorable tax consequences” to investors, which turned out to be a lie. The company filed for bankruptcy in February after the FBI and IRS raided its headquarter in Benicia, Calif., in December of last year.

The FBI alleged that the company had been using money from new investors to pay old investors who had leases for the company’s solar-generation equipment.

Authorities determined that DC Solar had sponsored fraudulent funds that totaled $810 million. Other victims included insurer Progressive, which recorded a $156 million loss in the first quarter, and Southern Californian bank East West Bancorp., which took a $7 million hit in Q1.

As we all know, fraudulent schemes are not rare these days and it becomes even more critical nowadays given the relaxation of regulations that allow for more funding raising via crowd funding or private financing. The largest Ponzi scheme in the human history is definitely the Madoff’s Ponzi scheme uncovered 10 years ago. Billions of dollars have been lost for investors due to Madoff’s decades long Ponzi investment fantasy with a promise of high returns but low or no risks. You probably think after the Madoff’s well-known and widely reported Ponzi scheme, people have learned the lesson and won’t fall into such Ponzi schemes again. You are deadly wrong, if you think so. Just a quick search has shown me some new Ponzi schemes reported. For the one cited above, believe or not, even investors as smart as Buffett has been fooled and scammed. See the report here.

So virtually it is impossible for general people like you and me to be able to tease out all the weeds from the greens, especially for those via private financing or crowd funding. But at least we can follow a few principles to minimize the risk. Here are the top 3 that I personally follow:

• Too good to be true is usually correct and should be avoided.
• It is generally universally correct that high return is associated with high risk. If someone is promoting to you something with high returns but no or very low risks, cast your doubt first.
• Always assume you will never see your money back at the very beginning for investing in something, then determine what impact you may see if indeed all your money is lost. This is also true and useful for me in trading stocks. That’s why I almost always use options for trading purposes as I can predefine already at the outset what is the max risk I will take for each trade. This is how I manage my downside risk and how I can sleep well at night regardless how volatile the market may be.  

Is this move sustainable?

As we all know, trading is more of an art than a science. So there is no perfect formula to pinpoint the exact timing even if a direction call is right. But this time, it seems a perfect timing call I made for the stock! I’m talking about the streaming darling, Roku (ROKU). If you missed my call, here it is. When I made the call, Roku was just about going into a severe correction mode as I was cautioning and certainly some doubt was raised whether it was a right call to put some money into Roku. But purely lucky for a perfect timing, Roku quickly did a moonshot after my call with better than expected earnings and now it has doubled since then.

Sure I’m happy for a right call but as a contrarian trader, I’m constantly asking whether a move like this is sustainable. Some time it is but oftentimes it is not. And for Roku, I don’t think it is sustainable. Fundamentally I still like Roku but technically this move is a bit nosebleed overbought. Probably many short sellers got painfully squeezed by the “surprisingly good earnings” and had to covered their shorts, which could push the stock up substantially. And certainly there will be a lot herds typically doing FOMO when something is hot, which will further propel the stock up. What don’t make me feel right is its TA that looks quite bearish in the near term. Actually Roku has presented two times with virtually identical setup in the past year, both of which led to a sizable “crash” in the weeks ahead (see the chart below). While there is no guarantee of course this time it will follow the same path, I think the chance is high we will see a large giveback of the recent gain in the weeks ahead. That even the euphoric moonshot of the general stock market following the Fed's hint of the next QE in the past two days could only move ROKU down not up is quite telling how overbought it has been! Technically it is rather bearish!  Let’s see if I’m right again this time!😄😎

Who is the next to fall?

It may not be the earthshaking news but it is definitely important one to notice for investors. If you are not aware yet, the Trump administration has declared a national crisis for the opioid epidemic in the US. This is how serious the matter is. As part of tackling the crisis, the government is investigating those companies that have been deeply involved in creating this crisis. So here comes with the news: The opioid manufacturer Insys Therapeutics filed for bankruptcy protection Monday, days after agreeing to pay $225 million to settle a federal investigation into the marketing practices for its powerful but highly additive fentanyl (opioid) painkiller. As part of the deal last week, Insys agreed to plead guilty to five counts of mail fraud and pay a $2 million fine and $28 million in forfeiture. The company also said it would pay $195 million to settle allegations that it violated the federal False Claims Act, which involves defrauding the federal government through drug sales to health care programs like Medicare. Apart from the company’s criminal activities that are wiping out all the investors’ money, the CEO will likely go to jail for 20 years. That’s why it is extremely important to be sure your money is not tied to the companies that may follow the path. 

So who will be the next in the line to fall? Actually there are a few which are facing mounting lawsuits from the governments over their involvement in the opioid crisis. They are actually not small ones including McKesson (MCK), Teva Pharma (TEVA), Cardinal Health (CAH), and privately held Perdu Pharma, which is also filing for bankruptcy protection. It will be prudent to steer clear from these stocks at the moment as you will never know what may be coming for them! Hope I’ve given you enough warning on this crisis!

One thing I found especially funny is the comment from the TEVA CEO on the potential lawsuits they are facing. I cannot believe it until I saw this from WSJ. On TEVA's most recent earnings call, CEO Kåre Schultz basically told plaintiffs took look elsewhere for large settlements. Here's the quote: “As you know, we have a lot of debt, so we don't have that much money. So I think [opioid plaintiffs will] have to find somebody else if they want big settlements. It won't be with us.” Pretty interesting right that the CEO is thinking they are safe on this just because they don’t have much money due to too much debt already! It reminds me of a quote to the effect that when the debt is insurmountable, then it becomes your (creditor’s) problem, not the debtor! One thing that may be clear from his words is that they do think the probability to lose in such lawsuits is quite high. Actually not only for such skunk companies helping spread-out of the fatal crisis, there are many individuals who have made big money by illegally providing such additives to addicted patients. I personally know a physician who has been sentenced for 20 years in jail due to his excessive prescriptions of such controlled drugs to his patients. He used to be very showy in the social media for his wealth including a dozen of fancy and expensive collectible cars.  We are seeing more such lawsuits targeting such individuals now.      

Drug overdoses are now the No. 1 cause of death for Americans under 50 and analysts estimate that opioids could contribute to nearly half a million deaths over the next decade. That’s why it is indeed a crisis we are facing. I don’t know there is any magic to get it resolved quickly as addiction is one of the toughest issues to tackle. Addicted people will risk their life to just get highs. But I have seen some very interesting development related to the marijuana legalization vs the opioid crisis. A 2014 paper published in JAMA Internal Medicine reported lower opioid overdose death rates in states with medical marijuana laws. The study found that between 1999 and 2010, states with medical cannabis laws had a nearly 25% lower average rate of opioid overdose deaths than states without such laws. If this indeed proves real, it can be great news for highly addicted patients as per my reading from experts in this field, it is highly unlikely to get overdosed with marijuana but it has a great deal of potent effect for many illnesses, including pain-killing. I know this is a very controversial topic and many people can have drastically different views on it. I’m not here to argue with anyone but just to share my view that I’m pro medical use of marijuana, especially its CBD component that is not tied to the neurostimulating effect (THC dose that). From the investing perspective, regardless you like it or not, the trend is very clear that it is just a matter of time when but not if that at least medical use of marijuana may be legalized at the federal level. Right now most of the States have already legalized that but it is still a crime per the federal law. However I won’t be surprised to see a change on this within a couple of years.  

As I said, this is a highly controversial area for investment and it is extremely volatile. But if you share my view and want to at leave get your feet wet, Canopy (CGC) will be the biggest player in the cannabis (CBD) sector. It is considered the next Microsoft in the CBD sector by some experts. One thing extremely interesting is that CGC is also investing in the CBD products for pet med use. You may be aware that pet medicines is a huge market. One of the common problems for pets like dogs is also pain-related like arthritis or joint inflammation. Medically I don’t think why CBD cannot be also effectively used for dogs as pain-killer. It’s effective with much less side effects compared with commonly available pain-killers. CGC is teaming up with Martha Stewart to dominate the niche, who will join as an advisor to help develop CBD products for animals. I think this will be a big win for CGC in addition to its many other active developments in this field. But again, this is a highly speculative field that requires good risk management for trading or investing in it. So don’t just blindly follow the herd, especially not to fall into FOMO. There will be a lot of ups and downs with big swings in the course of firmly establishing a trend for CBD.

One of the easiest trades for now

Before I’m telling what I’m doing, let me first share with you something interesting.  Four years ago, we witnessed the birth of a baby deer in our backyard. I posted a blog for it (see here). This week, we saw the breast-feeding to a baby deer in our backyard again (see here). Really fun to see the cute baby deer toddling around. This is one of the funs living in the deep woods!

Now regarding trading, the market is doing something indeed very amazing in the past 6 months: two virtually straight-line V shape recoveries, one from Jan to May an unprecedented in terms magnitude and length and the other just the past week, a mini one nevertheless also rarely seen in my view. But as I have said several times, DON’T BELIVE THIS REBOUND! Regardless how strong it looks like, it is not sustainable, believe me! I think more pain is ahead during the summer time, although right now it appears the short term trend is going up. It is nearly certainty technically that we are going to see another bull trap soon but I can be wrong, as always. In other words, it is my opinion that this market is not safe and easy to trade and more volatility is ahead of us. This is especially important for those who tends to be FOMO and chasing with the herd and they can be easily rippled off by those “professionals” (market makers) who are targeting such kind of dumbs. Having said that, I think there is one trade that I personally think is easy to do with high possibility of winning. That’s the bond trade.

If you are unaware of yet, bonds have done something quite remarkable in the past month as well. The long term bonds (TLT) have moved up nearly 5% in a month. You may think it is laughable for a 5% move in a month, right? Actually you rarely see bonds move so fast with such a short period of time! As I have said a few times, it is a Powell’s rally as he has “surprised” and given the market the gift by virtually “promising” to cut rates. This has triggered a fast downward move for interests in general, which inversely moves up bonds. It is another topic whether we will see lower or higher long term interests in the years ahead but at least for now, all the interest rates are moving down swiftly. But I think this move is too fast too soon and has set up a technical overbought condition for TLT. Currently TLT has broken up its multi-year resistance at around $130. So it may further go up in the months or even years ahead. Nevertheless, for the near term in the next few weeks, I think there is a high chance to bet TLT will move down towards its previous resistance and now support around $125ish. So I’m actively shorting TLT and have already seen my paper gains from it in the past week. There is one catalyst to potentially push down TLT fast. As I said, the market has effectively priced in at least one rate cut for this year but more and more people are actually expecting a rate cut coming next week at the Jun FOMC. I think it is highly unlikely and will probably disappoint a lot bond traders. If I’m correct with no rate cut next week, we probably will see some active selloff for TLT, which should be great for me by shorting it. If you are not comfortable with shorting, then TBF or even more risky TBT should do the trick for you if you agree with my directional call. 

While I have a high conviction for this trade and therefore call it one of the easiest trades, I may always be wrong. Therefore my downside is predefined with option trades with a 1:3 type of setup, losing one for a potential 3 gain. Let’s see how it goes next week.         

Breast feeding baby deer

Two years ago, we witnessed a baby deer born live in our backyard. Amazingly the baby deer could immediately stand up and start to walk, although staggering around initially. Today, 11-Jun-2019, we saw a baby deer sucking milk from her Mom at our backyard. How interesting and amazing it is! 😇😄😀

Something big may be coming

If I’m telling you that gold is reaching all time highs, would you believe me?

‘You must be nuts”, I’m hearing now. But don’t be so fast to judge. See the below chart to see if I’m correct!

Gold has clearly surpassed its old highs and has broken the resistance into all time highs, right? Of course, not in the dollar term but also not in a Zombie currency. It is one of the major currencies from one of the richest countries, Swedish Krona (the blue line for SEK)! So why it is important that makes me think something big for gold may be coming?

Among many reasons for the all time highs for gold in SEK, one major factor is its negative interest rate that has been in place for about 10 years now. What does a negative interest mean? Well it means you have to pay the bank to save your money in the bank! Sounds crazy, right? But this is not uncommon actually in the Europe. Actually many rich countries including Switzerland have gone negative for quite few years and it will become more common moving forward. It is not a pretty world anymore, folks! The decades long senseless spending and borrowing virtually by all the governmentS has put us in a road of no way back. US is the only major country in the world right now with quite a strong economy ongoing but it will also face dire situation of unmanageable debt load in the years ahead. It is just a matter of time, not if, that the reckoning day will finally knock at our door!

So with persistent negative interest rates in Sweden, it has driven people away from saving and the only safer way to save is to buy gold in general. It is understandable why gold has broken out to all time highs in SEK but what’s the big deal in terms of the US dollar for gold, which is still struggling at the low end of this correction? Indeed, after 8 years of severe correction, it is still challenging for gold to break out to its next major resistance around $1400, not to mention the all time highs in $1900s. But I have a hunch that gold may be poised for a really big move to the upside this time. We may be even at a time similar to early 2000s when gold started a decade long gigantic bull run, jumping highs by 5 times! Three major factors for me to think about it this way:

• We now know that it is nearly certainty that FED may likely cut rates soon, which is a big positive for gold and the reason for a fantastic up run for gold in the past few day. Will we see a negative interest in the future in the US? Difficult to say but I cannot say no for sure, especially if the debt bubble is burst in a big way in the next few years!
• I have talked about this before that our major financial danger facing us is the uncontrollable debt bubble in all areas: governmental, corporate, and personal debt, all in the historically high levels and increasing. There is no way to pay back all these debts and if the long term interest rate, which is not controlled by FED, starts to move higher, just watch the cliff fall!
• Then the unstoppable socialism movement in the US. The basic principle for socialism is to use others money (via tax) or print unlimited money for the purpose of wealth redistribution, in the name of fairness. Every country in the world which has tried and implemented socialism has all gone bankrupted. Just think about what is happening to Venezuela in which the biggest humanity disaster due to socialism is still unfolding. Unfortunately, socialism is taking real momentum now in the US by the Left and more than half of the Millenniums who have been brainwashed with no idea how terrible the socialism will lead us to are in favor of socialism. Sonner or later with Millenniums becoming the majority of the population, socialism will become a reality unfortunately! This will of course lead us to another disaster on top of the debt crisis!

All of these will be a big boost for gold as it may become the only safety heaven for sensible people to hide. That’s why I have been a long term gold bug and have no doubt we will see all time highs for gold again. Right now it is more of a gut feeling than anything else that the next big bull run for gold is coming. I can be wrong of course as gold has been struggling for many years and each time failed to break out. Maybe this time it is the same. More importantly, even if gold indeed starts its next leg up, it wont’s be a straight line up but it can still be very volatile. So you really need belief and resolve to hold gold. Personally I do and will continue to do so!      

Powell is confused

It appears that the Market God is following exactly the roadmap I laid out recently: after an decent initial selloff towards 2750 (S&P) and then bounced back. We are now 140 points higher after touching 2730ish. I think we are going to challenge 2900 on this way up. But as I said before, don’t count a sustainable rally just yet. We will very likely see another wave of selloff later in the summer, probably much more severe than what we just saw. For the time being, it seems FOMO is developing and very near term, it is nose bleed overbought after today's fierce chasing highs. Some sort of minor correction is highly expected next week before we finally challenge 2900.  

So what has triggered this rally? Well you can say Powell has ignited it although technically we already knew in advance that this was coming. If not Powell, then for sure would be something else! I must say, the poor Powell must be very confused now!!

If I told you months ago that FED would cut interest rate soon, would you believe me? You probably would think I was so stupid to even think about it. But it appears I’m not so stupid now. Indeed I did tell you so black and white in January: "As I said, the market has basically priced in no rate hike in 2019 and it is even thinking there is a higher chance to cut rates than raising rates." While I’m not so stupid, I’m also not so smart that I can figure this out myself. I cannot but I can listen to what the market is telling us and decipher their hidden message. Back then, the bond market was telling us that there was a high chance that FED would cut rates or even another round of QE in not so long the future. You see, Powell was quite hawkish prior to Oct last year saying that more rate hikes were coming. He spooked the market and got “the color to see see..”. He then made a total about-face with a complete change of tone towards dovish. That’s when I said “Powell is scared”. The market loved what Powell did and has made a moonshoot in the first 4 months with new highs. Powell must have thought: Wow, this was great and my job had been done effectively to cheer those people on Street! Not so fast, Powell. More demand is coming. If not met, poor Powell will see more colors on the way. He must be so confused now what else he needs to do. Well, he may have finally figured out that the only thing he can do is to give in and give what the market is asking: to cut the rate. That’s exactly what he did by effectively telling the whole world that rate cuts are coming. The bond market has basically priced in nearly certainty that at least one rate cut by the year end!

After watching what FED has been doing in the context of what the market has been predicting, I’m really wondering why we need FED anymore. For any major moves by the FED in the past 15 years, it seems the bond market has always predicted precisely what FED would do way in advance. Maybe someday in the future, the human FED will indeed be eradicated and replaced by Robot FED, just taking in the order from the Market and implementing it. Maybe sound like a joke but I won’t be surprised to see something to happen to this effect in reality! 👀 🙏😇  

Practical Magic

Last weekend, my wife and I had an amazing experience on Virtual Reality (VR) with Microsoft’s HoloLens 2 headset. If you don’t know yet, the retired Space Shuttle is currently on show sitting at Pier 86 in Manhattan where you can see the real Shuttle. Unfortunately its inside is not open to the public but fortunately we could tour its inside via VR with HoloLens. It was truly amazing and we could even do a space walk with a pretty cool feeling. That’s why HoloLens has been called “Practical Magic” and I highly recommend you to watch this video to get a sense how powerful this magic is.

You all know that I have been excited about MSFT for 10 years by now, even during its darkest period when it was dead money for many. Back then, growth was not what I was looking for but just its fast growing dividends that I can reinvest. I’m happy as a royal long term investor for MSFT and now it has totally transformed itself thanks to its visionary CEO that has made MSFT among the top high growth techs again. Actually it has become the most valuable company with a market cap over $1 Trillion, a hallmark only very few companies have ever reached. See this interesting dynamic listing for the world most valuable companies in the past two decades. Microsoft has regained its past glory now, a truly amazing achievement by all means!! Microsoft is definitely not just a PC/Window company anymore, although it is still one of its major profit sources. It has been a frontrunner in many high tech innovations defining our future. AR/VR is just one of them. If you are interested, you may review this paper about the Microsoft product roadmap in 2019.

As I said before and let me repeat again, buying MSFT is similar to parking your money in the bank that you don’t need to worry too much from the safety perspective. Actually it is much better than wasting your money earning power if just left in the bank. It can safely grow your money much faster than most of other alternatives via dividend compounding as well as now its share value growth power. If you want to review my previous blogs on MSFT why I’m so much in love with it, readthis one with some links for others. Here is my advice, if I’m right about a significant market correction and if any luck that MSFT may also come down with the market, buy some or more if you already own it. You won’t be disappointed if you are a long term investor for it. No, it is not cheap at all and I doubt it will be really cheap again in the foreseeable future. But relatively speaking, if it can drop below $100 by any luck, it is good enough for me to buy more. Actually its TA indeed looks weakening and may push it down from here. Keep my words in mind, friends!!