Buy crude oil now

Crude oil has plunged over 5% within just 2 weeks, from over $100 to $95 now. This is a rather drastic move. Technically speaking, crude has been quite oversold and is poised for a rebound, probably a significant rebound. Using the technical indicators as a guide, I really think there is a good chance that oil will jump back in the near term and there is at least a great short-term opportunity for profit. USO is an ETF for tracking crude oil. As you can see below, it is flirting its lower Bollinger Band and RSI is sitting right at the oversold territory at 20. In the past year, USO has dropped to RSI 20 four times. And as you can see from the red line, each time, USO climbed back in the next few weeks toward its 50 day moving average, which is around $37. Although no guarantee and speculative, I think this is likely what may happen to USO to move up toward $37 in the next few weeks.

Tekmira's windfall

Tekmira Pharmaceuticals (TKMR) jumped 45% on Friday and more yesterday. If you are smart enough and have bought the stock, pat yourself on the back but I strongly suggest you should take the profit and run.

According to the company, the FDA loosened a hold on the Ebola treatment in the company's development pipeline that enables the potential use of TKM-Ebola in individuals infected with Ebola virus. The thing is, this is an investigational drug just started in human tests. In other words, there would at least a few years from now if everything goes well. Even if the drug can be successfully developed and approved for marketing, is there really a profitable market for it? I highly doubt. Ebola is a disease confined in Africa and we all know how big the market is. My gut feeling tells me that when the euphoria about this drug recedes in a few weeks or months, this stock will likely come back down to where it belongs to. Consider you have been warned.

Pick up the gift the market is sending you

Have you heard tax inversion? If you know the saga Pfizer was playing recently in trying to buy the UK company AstraZenec, then you should know what it is. In a nutshell, a large US-based company buys up a small foreign company located in a country with lower corporate tax. Then the US company moves its tax headquarter (on paper) to that country but maintain its operations still in the US. Without practically changing anything, suddenly the US company becomes a foreign company and pay much less corporate tax. This is a tax loophole but perfectly legal and makes a lot of sense business-wise, although in the eyes of the US government, this is very unpatriotic.

 Walgreens (WAG) started its buying process for a UK-based company, Alliance Boots. The Wall Street has always expected that WAG would for sure to go with the inversion to lower its tax. But last Wed, WAG announced that it would not pursue an inversion. I’m there are a lot reasons for them to make this decision but this unexpected decision definitely got the market off the guard. WAG was severely punished and its share price got a haircut with a 14% plunge. Well, this is to me a classic overreaction we have seen so many times by now. I take this as a gift the market is sending you. You see, the underlying business for WAG has not changed in any way. It is still a great healthcare company that will continue to thrive along with the aging population and increasing costs on medications. Walgreens is a high-quality company I have been watching for long time. It is very investor-friendly by paying increasing dividends and buying back shares for years. I don’t see this trend will change any time soon. I won’t pass this gift sent my way for free. I have not only bought WAG for myself, I also bought some for my son's portfolio.

 

 

Have you become the government's landloard yet?

If you haven’t bought Government Properties Income Trust (GOV) when I talked about about 2 years ago (see here), then you got a great second chance now. This is a fantastic income generating machine that you can trust since its tenant is the governments, which for sure will have the money to pay the rentals. If they are short of money, they can always tax you and me to make it up. Unless GOV changes its business model someday to stay away from the excellent tenants of Uncle Sam, I don’t see how it won’t make money.
Well, apparently somebody got panic lately and dumped the stock en mass. It has dropped over 10% in the past 2 weeks. The reason? GOV was making secondary share offering to pay down its debt. When a company issues more shares, it is diluting the existing shares and that spooked the shareholders. They ran in rush. But it is stupid. The thing is, GOV is actually doing something great in the long run for the shareholders because it is a cheaper way to reduce debt by selling more shares than borrowing money. Apparently the insiders think the same as I do and see this panic selling as a great buying opportunity. Two insiders, Trust directors Barry and Adam, bought $10.3 million and $8.5 million worth shares, respectively, following secondary share offering. If they did not consider this was a great buy, they would not have bought the shares, period. I bet they know much better about the company’s prospects than those outsiders who dumped the stock. I will go with them and have added more to my existing positions. By the way, GOV’s current dividend yield is 7.5%.

Macro: The Bottom Line (8/4/2014)

Don't get too excited about the U.S. recovery just yet

Amid geopolitical tensions in Eastern Europe and the Middle East, and with the Eurozone on the verge of deflation, the U.S. comes across as an oasis of stability. And this past week's data certainly reinforced this view. First, we had GDP figures pointing to 4 pct growth in the 2nd quarter, a full point above consensus estimates. What's more, the growth was broad-based, with contributions from consumption, business investment, and even state/local government spending. And to top it all off, July posted yet another month of >200K job gains. Without a doubt, the U.S. economy has left the winter blues behind. 

But is the U.S. economy strong enough to stand on its own feet? Can it now do away with the crutches of ultra-loose Fed policy? To put it bluntly: absolutely NOT!

 

The first consideration is wage growth. And to say the least, it continues to be disappointing. As the chart below shows, wage growth has more or less stagnated around the 2 pct YoY mark. Considering that inflation in the post-crisis era has averaged around 2 pct as well, this essentially means that in real terms, American employees' purchasing power has barely improved. Considering that consumer spending accounts for 70 percent of U.S. GDP, faster wage growth would be indispensable if the U.S. economy had any chance of achieving "escape velocity." This is not something we've seen. 

Source: Federal Reserve Bank of St. Louis 

 

What could lift wages going forward? The key is productivity growth - after all, firms would only feel justified in paying higher wages if their employees each produced more. On this score, recent developments are also hardly encouraging. After a brief surge following the 2008-2009 recession, productivity growth has been stuck at rock bottom since 2011. And with U.S. companies preferring to deploy their windfall profits toward stockpiling cash and buying back shares (rather than toward productivity-enhancing investments), this scenario is unlikely to change for the better anytime soon. 

Source: Federal Reserve Bank of St. Louis

 

The third major obstacle to a full-fledged U.S. recovery can be summarized in the below chart, courtesy of Reuters. The good news is that the number of officially unemployed has almost fallen back to pre-recession levels (the bluish-green line). But at the same time, the number of people not in the labor force (the orange line) has gone in just one direction - up. In other words, there has been a steady stream of individuals leaving the U.S. labor force. This has been mostly driven by demographic changes, specifically baby boomers retiring, though there has been a meaningful contribution from discouraged workers as well. Regardless of the cause, the fact is that the slice of the U.S. population neither working nor looking for a job has risen. This raises the bar even further for how much the U.S. economy would need to grow before policymakers can declare victory.     

Source: Reuters

So for all the media hype surrounding the headline numbers, it's important to keep the (equally-important but less cited) underlying numbers in mind: wage growth, productivity, labor-force participation rate. Until these measures show meaningful improvement, the Fed will be in no rush to tighten the screws on easy money. 

Earn money by managing others’ money

Do you want to earn money by managing others’ money? I guess everyone would love that if they have such a chance, as long as there is no mandate for guaranteed profits. Does not sound like something that other people would accept, right? Wrong! This is exactly how fund managers are making money. You are probably one of them who are willingly pay them for managing your money regardless of whether they make money for you or lose your money. For mutual funds in general, they usually charge fees (often 1-3%) based on the amount of the managed money in the fund, not based on the profit. In other words, even if the fund is losing money day in and day out, the fund manager will still make money as long as there is money in the fund. It is even more aggressive for hedge funds that the fund manager will in addition get a portion of the profit, usually 20%. But you should understand, most of the funds, over 90%, are actually losing money based on their long-term performance. So you should think twice if you are thinking to buy mutual funds. In general, I’d check their fees and also their performance track record for at least over a 10 year period. So how about switch the roles and let you become the one to earn fees? You may think I’m kidding but no, you can do that by investing money in a good fund management company and enjoy their profit from such exuberant fees.

T. Rowe Price Group, Inc (TROW) is a financial services holding company, which provides global investment management services. It is one of the world’s largest asset managers with more than $700 billion in assets under management. For those who have bought mutual funds, you may likely have heard about T. Rowe funds as it offers a wide range of mutual funds in a variety of sectors including equity and fixed-income around the globe. In a nutshell, TROW is a very successful asset management company and is very profitable. You can see their revenue and earnings that are quite stable and climbing. Since it is making so much money, T. Rowe is also a relentless dividend grower. In the past 25 years, TROW has grown its dividend at 20% per year, a rather astonishing record! Its currently dividend yield is 2.26%. If TROW can keep this rate of dividend growth, in 10 years, your dividend yield would be 14% based on the current stock price.

So if now is the good time to buy TROW? Apparently someone inside the company thinks so. According to the public information, Director Mark Bartlett recently purchased 4,500 shares, at a price range of $83.32 – 83.32, with a total amount of $375,000. Keep in mind, there are many different reasons of selling stocks but only one reason for insiders to buy their own company stock: they think the current price is great based the prospects of the company! At the moment, you can even buy TROW at a much better price: $78 per share. Technically, $77 is a very strong support for TROW and I don’t see much downside from here, barring any unexpected bad news or the overall market turmoil. Regardless, long-term I like TROW very much for its growth potential as well as a great dividend. Investing in TROW is like you are making money by managing others’ money.

Wait for 500 years to get your money back!

Amazon (AMZN) lost 10% since Jul 24 and 24% from its high. Is it cheap to buy or what you need to do if you have already bought AMZN? Dump it!

Don’t get me wrong. I like Amazon as a customer and I often buy things online from Amazon. It is indeed a great experience and reliable company to shop online. But as an investor, I must say it is stupid to buy AMZN. This is a stock with the most ridiculous valuation associated with it. Believe or not, for so many years since its inception, it is still bleeding and losing money. Just last week, it reported record quarterly sales of $19.3 Billion. Sounds great, isn’t! But it spent $19.4 Billion. So it still lost over $100 million. Per its own report, this situation will continue in the foreseeable future. So what’s its valuation? Let’s use the P/E ratio as a rough estimate. For the S&P 500 index, the average P/E ratio is about 19 times. For Amazon, it is astonishing over 500 times. What does this mean? It means you will have to wait for 500 years to get all your invested money back. Say another way, if AMZN wants to be in line with the S&P 500 P/E valuation, its stock price will have to decline over 90% to around $12 or so. I’m not predicting this is what will happen but for me I will definitely stay away from the stock and let those insane “investors” continue to play with it.