Leading signs from Dr. Copper

When Dr. Copper is sick, be careful what may be coming up next as it is a leading indicator and the overall impact may take some time to be felt. I certainly don't believe it is fatal or even life-threatening, but I do feel it is not a trivial event that should be ignored!! When I see people are euphorically chasing stocks again after being panicky to death just a couple of weeks ago, I must say those FOMOs will be killed again, probably soon! 

This was the blog I posted on Feb 16, entitled "This Doctor is having a heart attack". Looking back, this was a perfect early warning from Dr. Copper, telling people to be careful about the market. I know not many people at that time would take this warning seriously, SADLY!

As proof of its leading status, notice in the chart below that it topped on January 16. The S&P 500 didn't top until February 19. Copper then bottomed a few days before the S&P 500 on March 19 (March 23 for stocks). 

After a few weeks nice bounce back again led by Dr. Copper, it may be again leading its way down, at least seemingly so. Check the charts again above. It seems the stock market is closely following the footprints of Dr. Copper, showing low highs and breaking down from the bearish rising wedge with a descending volume. It is too early to call the top of this bouncing phase but I bet it is very close to it, if not yet there. 

BE CAREFUL!!  

Epic crash

You can make a lot of money if your house has the capacity to store oil these days!😇 

You see, you could be paid for about $40 dollars to buy a barrel of oil early this week. So if you could store it for a while and sell it later when the oil price return to its sanity, you can make tons of money, right?!

This is indeed an epic crash no one has ever seen before: the oil price dropped below zero to as low as minus $37 per barrel. Of course by now, this is not news anymore, but history. But not sure many people really know how this started. Here is the story I heard:   An oil trading firm in Singapore, Hin Leong, kicked off oil's trouble. Hin Leong buys and sells large super tankers filled with physical oil to distribute through Asia. Sunday night, it told the world it had a non-disclosed $800 million loss from trading oil. To cover the loss, it had to liquidate oil futures – a fire sale. It had to sell…Then the chain reaction started! Everyone else saw that someone was in trouble and backed away from buying the contracts, betting they could wait for a lower and lower price. They saw someone "in trouble" – someone who had to ditch their contracts – because they expired on Tuesday. In the future market, it is no joke to buy and hold something till maturity. A physical delivery will follow. So unless you truly have a storage to keep the oil, no one wants to get the oil delivered to them: each contract means 1000 barrels of oil!  That's why everyone wanted to offload their future contracts that expired on Tue this week, at any cost! May futures were trading around $14 at 6 a.m. Monday. Around 2 p.m., the price fell to just pennies. Within an hour after that, nearly -$40. Negative. For the first time ever in the history of oil futures trading, since it started in 1983. A 300%-plus drop in oil in one day!!😵

So what will happens when oil is in this unprecedented collapse never seen before? Two major consequences:

For one, a huge number of oil producers will go belly up. Per estimate,   at $20 per barrel of oil, more than 500 American producers will go under by 2021.  At $10, the number swells to more than 1,000... 

When the whole world is virtually ground to halt with no demand for oil while the supply is abundant, you can bet the oil price will remain low for quite some time. We probably will see it at $10-20 or even lower in the months ahead. So be prepared for a surge of oil company bankruptcy in the near future!!

The next major result of this epic oil crash is a creation of a bullish trend for VLCCs. Before I tell you what it is, think about for a minute. Where all the oil extracted from the earth will go, when no one is using it but it is kept being produced? You must have somewhere to store it, right? The thing is all the regular storage facilities have already been overwhelmed by the extremely high volumes of oil coming in every day. The world is basically not having enough storage room for oil now, period! That's exactly what had caused the epic oil crash on Monday to push it down to negative as everyone was afraid to get oil with no where to store it. But ironically, this big headache for oil traders is music to ear for a special group of businessmen, the owners of VLCCs, standing for "Very Large Crude Carriers". They are the largest oil tankers and can carry 2 million barrels of oil. So nowadays, if you can go out to oceans, you will see many such VLCCs floating out there, full of the black gunk in it. They basically have become the floating oil storage. Of course, they won't do this for free. Rather, they charge insanely high prices for the services. Here is the rate I have seen:

Tanker Rates by Ship Class

	2019 YTD	2020 YTD	Previous Week	Last Week
VLCC	25.6	103.8	175.4	185.7
Suezmax	22.1	59.5	69.0	74.8
Aframax	18.1	44.4	39.2	38.8
Pmax^	18.5	48.5	20.5	22.0
LR2	19.3	35.9	60.9	86.0
LR1	14.7	26.8	49.0	59.5
MR	14.7	22.2	22.1	26.1
Index*	20.3	65.2	97.7	105.1

Tanker rates- Single Voyages in US$ k/d

  * = segment weighted average 

 ^ =based on Caribs/US route only 

So basically VLCCs can charge about $200,000 just for one day of storage but this is something not just for days, but likely for months or even longer. Prior to this crisis, the VLCC rate was just about $40,000 per day. So the VLCC companies are making a killing as the result of this oil historical crisis! 

I luckily shared this idea about a month ago with my Family and it has already shot up about 70%. Of course, this is a very risky sector to trade as it is quite volatile, sensitive to headline news in either directions. At the moment, the market has probably priced in a a lot of its bullish fundamentals. I don't think it is a good idea to chase from here.

As we often hear, crisis always carries opportunity. So whenever something devastating hits, don't just be stunned and panicky. Instead, try to think out of the box and look at issues from different perspectives to see if something good can come out of the crisis.  😇 

 

 

"I got hacked"

This was the message I got last night from a friend, who was asking me for urgent help. Their laptop was hacked by someone, who was asking them to buy and send some bitcoin to a specific address. If not, he claimed he would post their private stuff online. Needless to say, it is a scary and very stressful time for anyone to deal with. Right now, nearly all of us are staying at home and most of the time we are doing something online all day long. It may also become the best time period for hackers to phish for private information and blackmail for as much money as possible. This may happen to each of us and therefore I thought to share with you about this real story and hopefully all of us can at least exercise some alertness and stay safe not only physically but also cyberly. Here are a couple of points to consider as part of safeguard for our cyber safety:

• When you get such a blackmail for money or bitcoin etc, first do some google search to see if anyone has reported something similar and what previous experiences exist. For this incident, my friend fortunately ended up doing just that and found out that the blackmailer per the email, named Wittie Haggerty, was reported in www.bitcoinabuse.com.  It appears to be a scam as there are six other instances starting from April 10, 2020 where this person did something similar to others, but "Total Bitcoin Recived = 0." So they decided to ignore the blackmail instead of sending the bitcoin as asked. So before following the blackmail's request, stay calm and do some research first. 
• Always use 2-step verification process whenever possible for any password protected personal accounts.
• Open a free account at protonmail.com. ProtonMail is incorporated in Switzerland and all their servers are located in Switzerland. This means all user data is protected by strict Swiss privacy laws.
  All emails are secured automatically with end-to-end encryption. This means even protonmail staff cannot decrypt and read your emails. As a result, your encrypted emails cannot be shared with third parties. This is especially important to send sensitive information between parties, both of which should all use protonmail. 
• Use VPN whenver online. I'm using Hotspot Shield, which has a high rating and I like it very much. But there are many other VPNs available, which can add a lot safety protection to your online privacy. 
• Always use a cyber security software to protect your device.   
  
• Last but certainly not least, use nontransparent tape to cover your laptop camera when not in use. You may not believe how easily your camera may be accidentally turned on without knowing and your privacy may be broadcasted online.     

Hope this helps and please do stay safe at home and online!!

Investors are all in

First of all, really great news that the early clinical trial evidence is quite promising to suggest effective treatment for COVID19 virus with remdesivir. If this is further proved by a larger patient pool in the randomized clinical study setting, that will really save life and help people globally to fight against this deadly damn virus! Keep fingers crossed!!!

The market may have already anticipated this great news together with some other developments that are exciting the investors and traders. So much so that they are virtually all-in!😗 This is not what I'm guessing. See here:

"ETF Investors Are All-In on Stimulus with $17 Billion Stock Bet"...this is what was reported by Bloomberg early this week. More from the report:

In only seven trading days this month, equity ETFs took in more than $16.5 billion, according to data compiled by Bloomberg. The torrid pace puts inflows on track to exceed the monthly total of $42.5 billion in December, when stocks rallied during what ended up being the tail end of an 11-year bull market.  

What a couple of weeks can make to change the sentiment 180 degree! It seems rarely you hear anyone talking about low testing these days. People start to jump in eagerly whenever there is a selloff, a typical FOMO feature. This is exactly what we were seeing in Feb when the market was topping but it was difficult to argue with anyone that the market could have topped and we should look out for a potential plunge. Technically speaking, we have passed the first two major Fibonacci retracement levels: 38.2% and 50% and we are now approaching the third major retracement at 61.8%, which should be around 2930ish for S&P, a spit distance. If we have another wonder rally day like today, we will get there by Monday. But there is something deserving caution for getting too excitement. I'm not superstitious by any means but I do believe the market cycle theory and the market quite often rhymes in cycle. Here is one I just got from my friend, just too difficult to ignore:  

Remember the 90 year cycle I've highlighted recently? Print off these two charts and look at them side by side.

April 17, 1930 - the Dow Jones Industrial Average topped after retracing 50% of the decline from the 1929 crash...

April 17, 2020, exactly 90 years later, the Dow Jones Industrial Average has now retraced 50% of the decline from the February high...

Also look at what had happened following the 1929 50% retracement. Do I mean we must follow this pattern this time? Of course not. We may just see the market continue to shoot up higher from here and recover everything within weeks. It is not impossible but I think it is a wishful thinking. In my mind, this is still a bear market rally. And remember.... the the main purpose of a bear market rally is to punish the traders who got too aggressively short, and to coax the wounded bulls back into the market, and then to punish them as well. Has the recent wonder rally in the past 2-3 weeks achieved this objective? We'll see soon!😎 

A toxic class to avoid at any cost

I feel really sad to write this but it has become so devastating to the point that I want to say something. 

When a society is run based on honoring dishonesty and cheating & lying have become something to be proud of for bragging, not shamed of, I'm not sure this kind of governing system can last for long. It pains me to say this but it has unfortunately become a norm in China for many years and per my judgment, is becoming worsening in the recent years. This kind of social immorality is nothing worse than a pandemic in my opinion, although it may not physically kill people but it dose kill people spiritually. The sad thing is that this is not confined within China anymore but is also spreading out to other countries as well. Let me share with you a short story. A couple of years ago, we went to visit the Manhattan China Town. My wife took the opportunity to do her hairdressing which was much more economic than other areas. For the whole hour during the process, the hairdresser, a retired professional from China, was bragging how he was abusing the US government system to get both his retirement pension from China without reporting here and also enjoy low income benefits here. Of course his cash income from the current hairdressing business was largely under-reported so that he could also get a government-subsidized  apartment at the heart of Manhattan. He said it was extremely difficult to get it as usually it would take many years in the waiting list. So he encouraged us to do the same to cut down our income reporting and started to apply for the apartment as soon as possible. He thought we were from local. I must say it was just like swallowing a fly and I almost vomited after hearing this kind of disgusting bragging for abusing the honest-based system. But I heard from many friends directly or indirectly that this is actually a widespread phenomenon in the US. No, I'm not saying this is only prevalent in the Chinese communities and I'm sure it has happened in other communities as well but the severity and density of such abusing among the Chinese communities should not be underestimated. For sure proportionally, this is only a small number of bad apples but they are destroying the image of the vast majority of the honest Chinese people like you and me living here. 

So why I suddenly bring this up in this investment blog? Well, if you still haven't heard yet, there is something happening big time these days that is very much relevant to the dishonesty that I'm talking about for the Chinese companies. Heard about Luckin Coffee (LK), the used-to-be rising star and deemed as a strong competitor for Starbucks? It has been decimated last week when it was reported for its massive accounting fraud for faked sales numbers. About 80% of its market cap was wiped out within hours and it is fighting for live now. I hope it won't survive and disappear soon. But problem is this may not be just a single incident for Chinese companies. Just ask yourself how much you can believe the accounting reports from China? While I'm certainly not saying that 100% of Chinese companies are involving some accounting fraud, I'm not sure I can say it is a small number or uncommon events. As I said, when the whole system is virtually "promoting and rewarding" cheating one way or the other, it is very hard to survive well to behavior honestly ironically. Now we start to hear more financial fraud for many Chinese companies, including but definitely not limited to TAL Education Group (TAL),  iQIYI (IQ),  eHealth (EHTH), and Ruixing.........The question is: have we seen the end of it or this is just the tip of the iceberg that may blow up eventually? I'm not smart enough to know for sure what the magnitude of this very severe issue and I cannot distinguish which are the good ones from the bad ones with any confidence. In this kind of highly invisible and uncertain time, the wise thing to do is to add Chinese stocks to the list of stocks that are currently toxic and better to be avoided. This is my advice more relevant for long term investors. For nimble traders, some short term trading either directions may still be considered but need to be very cautious in terms of size, duration and downside risk management. I think trading options will be much better in this situation as the downside risk can be predefined. A general stop loss for stocks cannot really help when a stock is imploding like LK for a sudden 80% crash. Better not to take such kind of unmanageable risk for long term investment at all!! 

The world is a lot quieter today...but not the market!

My friend forwarded me this interesting report:

Believe or not, while the anxiety-provoking mainstream news channels and social media feeds on our smartphones may indicate otherwise, but Earth has actually gotten quieter over the past few weeks. A recent article in the journal Nature described the science... "Researchers who study Earth's movement are reporting a drop in seismic noise – the hum of vibrations in the planet's crust – that could be the result of transport networks and other human activities being shut down."

Other earthquake scientists in Los Angeles and London posted charts online showing the same trends in their cities. More from the article..."Just as natural events such as earthquakes cause Earth's crust to move, so do vibrations caused by moving vehicles and industrial machinery. And although the effects from individual sources might be small, together they produce background noise..."

While our physical activities as a whole on the globe have been substantially muted these days, thanks to the damn virus, the market in the past two weeks has been nothing near muted. Actually it has been roaring hot and seemingly strong, at least on the surface! Even though I'm not surprised for a 20% rally at all as you know, I'm indeed a bit surprised for a 30% rally virtually straight line up within 2 weeks. This needs to be viewed against the backdrop of something really unique and unprecedented in the past 100 years in terms of the ferocity of falling into the bear market from the peak of the red hot market and the magnitude of the daily volatility. See the following interesting study again shared with me by my friend. 

The chart below depicts all stock market declines of more than 20% that happened after all-time market highs. The data dates back to 1915.Historically, on average, it has taken 255 days for the market to go down 20% from a peak (a 20% drop is the definition of a bear market). In March, it took just 20 days - which is less than 8% the time of the historic norm. You wouldn't believe it unless you lived through it. Even the 20% stock market crash of 1929, known as "The Great Crash," took 36 days. This time around, we almost cut that in half.
A Surprising Amount of "Up" Even though the market in March 2020 went down at record pace, the swings upward during the month were equally extreme. One day, the market had a big drop. The next day, the market had a big gain... It went up big, and then it went down bigger. It is really quite amazing that we went down as far as we did with how many massively positive days there were. Pictures tell a thousand words, so I'll show you how wild March 2020 was with another graph. This graph shows the Dow's cumulative absolute percentage daily change over the month of March compared with history. ("Cumulative absolute percentage daily change" refers to how much the market moved each trading day regardless of direction. So if the market went down 2% on day one and then went up 3% on day two, the cumulative percentage change would be 5%.)Wowzers! There is nothing in stock market history that even comes close. Adding the 22 trading days of March 2020 results in a cumulative percentage change of 117%. That is an average daily change of 5.3%! The next wildest month in history was October 2008, which had an average daily change of 3.8%.

  The million dollar question is whether or not this rally is sustainable and we are out of the woods already.  Of course no one knows for sure, nor do I. But I'm willing to bet by no means we have gone out of the woods by now. Far from it! Although I'm in the campus of believing that this bear market is different from all the previous ones in that it won't last for long, probably much less than the typical 18 months or so, I definitely don't believe it will be just a few weeks long. I'm convinced there will be another leg down to test the Mar lows, probably not once before we can finally go out of the woods! I know I tend to be early in macro calls and I won't put a specific timeline when this next leg down may come but personally I'm accumulating short positions to be prepared for it. The easiest way to hedge the downdraft is to buy some inverse ETFs. Of course no guarantee that it will start to work immediately but at least it is good to have some insurance. One thing I'm sure about is not to FOMO now by chasing highs from here. What we are seeing now is nothing different, sentiment-wise, from that seen prior to this fastest epic crash late Feb.  Although feeling great, believe me,  it is enormously dangerous!! I had warned similarly for weeks since Dec last year without many believing me. Could this fake rally continue for another few weeks? Sure it could but I highly doubt. Considered being warned!!!   

Does UV light kill germs? Getting an at-home sanitizer may be worth it

I have done some research on different ways of killing virus that may be brought into our house. I think this is one that I really like, which appears very cost effective and easy to sanitize all the stuff brought in from outside, including mails, bags, clothes, foods etc. Thought to share with you, wishing everyone having a good health free of the damn virus in the current pandemic as well as into the future. By the way, this small portable UV light sanitizer can also be taken with you for travel, including sanitize the airplane seats that are very dirty actually and hotel rooms. What a great peace of mind with this powerful cleaning tool. Hope this helps!

See the detailed report here, with the key messages below.

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• Ultraviolet (UV) light destroys the molecular bonds that hold together the DNA of viruses and bacteria. 
• UV light is a particularly good option for sanitation because it kills bacteria regardless of drug resistance and without toxic chemicals.
• At-home methods of UV sanitation have been proven highly effective against pathogens and come in a variety of forms — including portable wands, phone sanitizers, and toothbrush cleaners. 
• This article was medically reviewed by Tania Elliott, MD, who specializes in infectious diseases related to allergies and immunology for internal medicine at NYU Langone Health. 
• I bought two UV light sanitizers, one portable for travel and the other one with cord cable for home use. Quite cheap via Amazon to buy. 
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What Buffett can do to fix his portfolio

I must sound like nuts to even think about telling Buffett to fix his portfolio. How dare I ?! But before you laugh at me, first see his performance in the past 15 years:  As of the close of 2019, Buffett had underperformed the S&P 500 over the past 15 years. So it is not so much bizarre to at least think for Buffett what he may consider to do to improve his performance. After all, he is the icon as the living investment God that has countless followers and I know literally there are may people who simply just copy Buffett's portfolio to buy or sell what he is buying or selling. It must have been a great simple strategy during earlier days to follow Buffett in such a way but certainly not in the past 15 years!

As we all know,  Buffett's company, Berkshire Hathaway (BRK -A or -B), is just like a mutual funds as he holds dozens of great stocks for decades that have given him a huge moat with increasing earnings from them. His best part of the portfolio is about those companies he accumulated during his early years like KO, AXP, and many banks and insurance companies that are generating huge growing dividends year in year out. One recent new holding, which is a perfect pick by Buffett and is also the biggest holding for BRK is AAPL. A newly added but a much less weight is AMZN. These are all great stocks to hold. But for some reasons, Buffett has largely changed his investment style in the past 10 years or so to start heavily invest in those companies that are enormously capital dependent with low profit margins. The typical examples are the airliners that is a business that is very difficult to make money but needs a lot of capital input to maintain their operations. Similarly the capital deficient railway business, the privately owned  BNSF Railway, as well as the dying business KHC. In other words, Buffett has moved away from his very successful earlier years core investment strategy but somehow becomes more interested in those businesses with low efficiency but requiring large capital investment. This has become so apparent that even an 8 year old girl has noticed and questioned Buffett at the 2018 annual meeting. In front of 40,000 people, this eight-year-old girl asked investment legend Warren Buffett and his longtime business partner Charlie Munger why they had invested so much in low-return, capital-intensive businesses over the past 20 years, instead of buying great businesses like Buffett had for the first 40 years of his career. Buffett was stumped and had a difficult time to give a good response (Click here to see the video). 

Now along with the sudden unexpected bear market falling onto us, BRK is not immune to the waving of selling. It has lost about 30% of its value as well. But this is definitely the first time Buffett is facing some challenging time.  Over the past 50 years, Berkshire has fallen between 40% and 60% four times. And it has rebounded without fail. In the two years after the dot-com bubble burst, Berkshire soared 77%, while the Nasdaq tumbled 62%. So you can count on a healthy return of BRK shares after this health crisis is overcome. What I think Buffett will most likely be doing in the next few months is to deploy his huge cash pile worth $128 billion to work. Buying back his own stocks is one on the top of the list. Buying more of the existing stocks may also be a likely part of his cash spending. What I really hope Buffett can do is to fix his portfolio buy reducing or even existing those capital intensive stocks and buying or adding more of those capital efficient stocks. What will be a sure way to boost its portfolio performance based on my humble opinion. Of course the chance of expecting him doing this is extremely low as I'm even not sure he has realized his "mistakes" till now. He may even add more money into those poorly performing capital inefficient stocks. That's unfortunate but that's the most likely scenario. Regardless, buying BRK during this crisis is still a good idea as there is zero chance that BRK will fundamentally be damaged by the damn virus. It will survive well and return higher eventually!    

 

 

A big difference....

The market has been upside down for the past month and the panicky gyrations are continuing. I'm pretty sure those active FOMOs in chasing highs prior to this epic market meltdown are also those most actively chasing down (a kind of FOMOs as well). They probably just sell anything in panic, feeling the end of the world is coming. This kind of mentality and sentiment swings really underscore why most of the people in the market will lose money over time. One typical behavior for general investors is to blindly sell all the stocks and move the money into the presumed safe haven, bonds. It may make people feel good for a while but in the end, this usually leads to a drastic underperformance over time. See the interesting chart my friend has sent me, which vividly presents the difference of the one year performance in the past two health crises (SARS and Zika) between those who sold during the meltdown and moved to bonds vs those who stayed on the stocks during the painful period. Sure you can argue this time may be different but I doubt as a whole, we will see a different outcome after the crisis passes.

 

Just to be clear, I'm not talking about individual stock risk management. For any trading stocks, one needs to have a clear exist strategy with a predefined plan to sell if necessary, e.g. a stop loss. This is an important part for safely managing a portfolio. What I'm talking about here is a general concept where people may just blindly sell during panicky period like now. For example, some people may just move all their stock funds in their 401K to bond funds for safety. This kind of mentality and action will most likely result in significant underperformance for their portfolio over time! Don't be one of them. Only act rationally and stick to your predefined exit plan instead of doing anything emotional.

Before I finish, let me share some positive news regarding the ongoing battle with the coronavirus pandemic. See below about a new FDA initiative with more details via the link: 

As part of the Trump Administration's all-hands-on-deck approach across public, academic and private sectors to combat the COVID-19 pandemic, the U.S. Food and Drug Administration stood up a new program to expedite the development of potentially safe and effective life-saving treatments. The program, known as the Coronavirus Treatment Acceleration Program (CTAP), is using every tool at the agency's disposal to bring new therapies to sick patients as quickly as possible, while at the same time supporting research to further evaluate whether these medical countermeasures are safe and effective for treating patients infected with this novel virus.

I must say I'm really impressed by and will applaud for Trump's political courage in personally intervening and influencing the FDA to move to the right direction by removing the unnecessary red tapes. As a physician with a deep knowledge of drug development, I know how critical and rightful it is for the FDA to do this in speeding up the treatment development process, which may save months of time to allow patients in critical status to be able to be treated effectively. I don't think any other presidents in the past had anything near the audacity that Trump has in challenging the notorious political correctness in fighting for the sake of American people's interests. I think history will prove that what Trump is doing now may save tens of thousands of American's life at the end. 

WELL DONE, PRESIDENT TRUMP!!