Buy HongKong stocks to get onto the Bernanke bubble train

The way Bernanke is doing to print money unlimitedly will turn all assets into huge bubbles. No question about it. It is not whether but just when. That's why everyone should buy gold and silver as part of their investment portfolio. In addition to that, I have got an idea to catch up the bubble train via stocks, the HongKong stocks. Why so? This is because the unique feature involving the HongKong dollars (HK$).

Not sure if everyone knows that HongKong has pegged its currency to the US$, i.e. the HK$'s exchange rate with the US$ is fixed, which is up and down consistent with the US$ value. In other words, the H$ is not valued based on the HongKong economic conditions but rather it is purely determined by what the US Fed wants to do. Right now, the US economy is in a big mess and its inflation appears to be quite tamed due to very slow economic activities. But this is not the case in HongKong, which is actually economically doing very well. When a currency is depreciating in a strong economy like HongKong, what will definitely happen? High inflation! In other words, as long as Bernanke is printing money as he is doing now, the HK$ will be further depreciating along with the US$, leading to more and more severe inflation in HongKong. You probably have heard that the HK housing market is super hot at the moment, a clear sign of a bubble unfolding. Actually when inflation picks up its pace, everything will go up. I think there is a good chance that the HK stock market will go up much higher than anyone can imagine. There is actually another factor favoring the HK stock market. As I said at the previous blog, I think the Chinese stock market may pick up its steam soon. If that's the case, it will further propel the HK market. This is almost like a double-dosed stimulus for the HK market. As you can see the chart below, the HK stock market (via ETF: EWH, the blue line) is generally doing much better than the Chinese stocks. If you believe this thesis, consider to buy EWH at its pullback.

Chinese stocks become attractive

Am I crazy to be interested in the Chinese stocks? The Chinese economy is quickly deteriorating. Its housing market is substantially cooling down. Inflation is rampant....You name it. Nothing seems to point to a rosy picture for the Chinese stock market. Indeed, the Shanghai index is among the poorest performers in the world, declining over 10% in the past year. It seems most of the Chinese investors have become very desperate and even given up totally. Well, this is actually the time you may find good opportunities for great values. I cannot say the Chinese stock market has absolutely bottomed but if the Shanghai index can hold above 2000 for a while, then its uptrend seems quite solid. At the moment, the index is fighting against this support level. See below:

If indeed this turns out to be the bottom for the Chinese stock market, what is the best way to trade on this trend? You can look for good individual stocks but I'm not so comfortable with this approach since it is very difficult to know whether the fundamentals of each company published are credible. One better way for me is to buy the ETF for the top 25 Chinese companies' stocks, FXI. Collectively, these stocks reflect the best managed companies in China and actually it has consistently outperformed the Shanghai index (the green line for FXI vs blue line for Shanghai index).

Oil may drop another $15 from here

About 2-3 weeks ago I predicted that oil would decline substantially when it was high $90s. It did and it is trading below $90 now. An over 10% drop within a few weeks is quite substantial. So do I think it has bottomed now? I don't think so. There are 2 major forces pushing oil down the slope. The main reason is the fundamental one that oil should not be this high. You see, the global economy is deteriorating quickly and is slowing down everywhere. The three major economic bodies, US, EU and China, are all suffering from significant recessions. Without an economic growth, the oil consumption cannot be supported. Making the situation even worse is that the oil production in the US has increased dramatically in recent years, thanks to the new technology such as frackings and horizontal drilling. It is an economics 101 that high supply with low demand will only lead to a low price of any product. Oil is no exception. So why oil could still be that high till now? It is largely due to the geopolitical tension in the Middle East, especially the Iran's nuclear program. People are worried that if Iran's is attached by Israel or US, the oil production and transportation in that area will be impacted substantially and will cause shortage of crude oil. This leads to the 2nd main reason why oil price has dropped so much in the past few days and will continue to push it down. Iran has been under a very severe economic sanction led by the US. This has led to its significant currency depreciation. Iran's currency, RIAL, has declined its value by 75% in the past few years, and it dropped 30% just in the past few days. Such kind of dramatic currency depreciation associated with hyperinflation has caused its social turmoils and riots in the street. Now there is speculation that the Iranian government may not survive the sanction and the regime may be changed. If that's the case, the risk of a war has been greatly reduced and the sanction may be lifted if the new government yields to the Western pressure to stop the nuclear program. If so, its oil production will increase substantially. With this kind of logical thinking, how can the crude oil price still remain at this level, when it is not supported by the economic fundamentals? Some experts even predict that the oil price may drop another $15 from the current level. I won't be surprised if it indeed happens. Of course, it won't be a straight line dropping down. It may even come back a bit but that will be a great time and opportunity to short it. ERY is the 3 times leverage ETF to short crude oil but obviously this is very speculative with a high risk.

3-D Printing: next life-changing technology megatrend?

I'm not a tech guy and cannot really say too much about this field. But late days, you probably have also heard a lot of talking about 3-D printing. It seems this technology will become part of our life pretty soon. Even as a layman, I'd think this will be a huge market. Today, I'm really shocked and amazed to see this video: the 3-D technology to be used for making a lightweight and flexible working prosthetic for Emma, a magic arm. This is really a life-changing technology, which will change everything we rely on such as how to make or build medical implants, homes, airplanes, etc. That's why it is estimated that this industry is worth at least $1 trillion ( $1000 billion). I think this is a super megatrend one should not miss. So which company is the leading manufacturer for 3-D printer? Stratasys Inc. (SSYS)! Well, as you can see from the chart below, those early investors sensitive to technology have already jumped into this company. In the past year, SSYS has advanced 3 times. At a PE ratio of 70, I think it is a bit too pricey. I will be patiently monitoring this company and jump in if it comes down in the next few months. In the long run, there is a huge potential to get onto this train.

Be careful about what you put in your luggage

This is nothing to do with investment but thought it would also be interesting to you. Stealing of valuable stuff from your checked luggage in airport appears very common. If you think they are safe, be careful and think twice. See this report here.

A hidden value stock: Barnes & Noble

Whitney Tilson, the co-founder of the T2 Partners, is a very successful value investor. When he speaks, I listen. A while ago, I saw he was discussing Barnes & Noble (BKS) on CNBC and said that at the price of around $11, it had a potential to go up over 300%. They were long this stock. Here you can see more details about his thoughts.
In a nutshell, BKS has 3 core businesses: 1) the Retail bookstores, which is dying and bleeding  2) the college bookstore business, which is stable, and 3) the Nook eReader platform which sells the devices and digital content. The Nook is really its hidden gem, which has a 25% share of  the eBook market, No 2 behind Amazon. According to Tilson, its book value is around $11, meaning there is little risk to see it go down much further. The market seems to agree with him. It has come down several times in the past year but always bottomed around $10-12. If you have patience with a long-term perspective, BKS may be a good value stock to consider. I haven't got in but am thinking to use the current market correction to get some BKS.

More signs for gold to go up

I have talked about gold or precious metals a lot over the past 2 years. Don't want to repeat what I have already talked. Just a quick note about what I have recently read that two more signs to support why gold will continue to go up, A LOT HIGHER!

One is what central banks worldwide are doing with gold. In the past 20-30 years, central banks had always been the net seller of gold each year. But the situation has changed in the past 2-3 years. Central banks have become the net buyer of gold. In June and July this year, about 150 tons of gold were bought by central banks. The Chinese central bank is probably the most aggressive one for buying gold. Not only all the gold mined in China has all been bought by the central bank (it is illegal to export gold by Chinese miners), substantial amount of additional gold has also been imported each year by the China central bank. It is still rumor but I believe it is credible that the Chinese government is accumulating gold in order to support RMB (the Chinese Yuan) to be the only world currency backed up by gold. If this is true, then RMB may replace the US$ to become the world reserve currency eventually.

The other news very bullish for gold is that Samsung is providing financial support to a mining company, Cluff Gold,  and in return to get gold bullion; See the press release of Cluff Gold:

Cluff Gold plc, the dual AIM/TSX listed West African focused gold mining company, is pleased to announce that it has signed a Memorandum of Understanding for a long term strategic partnership with Samsung C&T Corporation (“Samsung”).  This alliance commences with an unhedged US$20m facility to provide additional funding to Cluff Gold to further the development of its portfolio of assets.

Through this long term partnership Samsung will have access to a reliable supply of gold bullion, underpinned by the Company’s strong operational and management team whilst Cluff Gold will benefit from Samsung’s financial support.  The relationship is expected to result in a significant financing in Cluff Gold’s Baomahun project, subject to the outcome of the feasibility study, together with an ongoing commitment to jointly assess other opportunities in the region.

This is a rather significant development, indicating that major companies cannot stand the continuing depreciation of currencies and are turning to gold as their cash reserve. In other words, companies will more and more treat and accept gold as money. I won't be surprised to see that soon gold and/or silver will be the acceptable currency for business and services between corporations. Think about the implication for gold and silver prices in the long run! But be careful about the very short-term volatility for gold and silver, which need a healthy pullback before turning up again.