Marissa Mayer’s Yahoo CEO days may likely be numbered

I first became interested in Yahoo back in early 2012 when I said I was accumulating Yahoo shares. Its price was around $15 back then and I was greatly rewarded when it shot up to over $30 in less than 2 years. My call options shot up 10 times more. At that time, Yahoo was clearly undervalued by the Street and it was a gem hidden in the ripraps. Now Yahoo may be another good speculative target but for a different reason.


There was a huge hope for Marissa Mayer when she became the new Yahoo CEO in 2012. People thought Yahoo would turn around to thrive again under the Mayer's helm. However, it has been a great disappointment to see that Yahoo has not revived at all. On the contrary, since Mayer became CEO, Yahoo's revenue has fallen nearly 30% in the past 3+ years. It is almost a certainty now that Mayer has no ability to turn Yahoo around and it will only become worse if Yahoo keeps status quo. I don't think the Street has such a patience. I think either Mayer is kicked out soon by the board or Mayer has to sell Yahoo in the near future. Either way, it may be a good bet that Yahoo's price will likely be boosted. I believe buying Yahoo below $30 is a good speculation for some good surprise to come soon.
 

Gold is in a parabolic move short term

I love gold and I'm convinced we will see gold in thousands of dollars in my life time! Two weeks ago, I posted a blog detailing why I think gold is a great asset to own. With what happening around the world by the central banks and governments, gold will become more and more of a safe heaven for sure. The recent move by gold is an epitome of how a safe heaven looks like when people are nervous and uncertain about their fiat money's value. So is it the time to back up tracks to load on gold? I'm not sure. Actually I think gold is in a dangerous parabolic move that people are chasing it due to worry about being left behind. This kind of panic buy is typically seen at a peak. Let's step back and review the recent history of gold rallies in the past 3 years. At the moment, gold has gone up about 15% in less than 2 months. If you check the gold prices in the past 3 years, there were 3 more similar rallies with a gain over 10%, ranging from 13% to 19%. Each time, as reported by COT (Commitment of Traders) the commercial traders (the smart money as they are the ones really know when to buy or sell gold, such as gold mining or royal companies) were selling gold when the public were buying. Then the gold peaked each time, the short interests (selling orders) of such smart money usually went up to 100K or more. Right now, the short interests have also reached the 100K level. This is a very powerful indicator that gold will likely run out of gas with this move. Now, let's also look at the chart of gold (GLD). Same story that gold is very much overbought per RSI and it is also showing a bearish double top pattern. I think gold has peaked near term and will come down soon to test its support. The most likely target should be around its 50 day MA ($1150ish) in the next few weeks. That will be a great time to buy for long term.

 

No immediate crash to come.....yet

As you must know by now, I've been very bearish for the overall market for quite some time and I even advised "Get out" very recently when S&P was a bit over 1900. Nothing has changed about my general view of the market and I'm still very much convinced that S&P has a lot downside to go and will likely touch 1600 at some point! Having said, be aware this is not a short term target and by no means I'd have thought this would be a straight line down to reach that level in just a few weeks. Instead, we will see a lot of ups and downs with intensive volatility during the process. At the moment, I have to say that the market is likely heading up in the next 1-2 months. Why so? Well, look at the chart below: since the last crash in Aug 2015, now it is the first time that we are seeing a clear MACD positive divergence when S&P was testing new low a few days ago. With the significant depressing sentiment prevailing at the moment, this is clearly a contrarian indicator suggesting the market may go more likely up than down for a few weeks. Another supporting evidence is coming from the volatility index, VIX. If you look at the VIX options for March and April, its put options are about 30-40% higher than its calls, suggesting traders are expecting a lower VIX in the next couple of months. A lower VIX is usually associated with a higher stock market. However, ever though S&P may likely go up, it won't be a roaring rally and I don't believe it will go too much higher, maybe up to around1900 to 1950. After that, a more severe crash should ensue, especially when people become more euphoric with an upbeat sentiment!


Having said that, don't be surprised to see further weakness of S&P in the next few days towards 1800 before a more sustainable 1-2 months rebound starts.

Get out!

A couple of weeks ago, I said "Buy not Run" when S&P crashed to 1812. I was thinking that with  extreme pessimisms at that time, the market would likely rebound. That was what had happened in the following few days. S&P shot up to 1947 within just a few sessions. Honestly I was even expecting that S&P could run up a few more points to challenge its 50 day MA around 2000 at that time. But now I have to say I see less and less chance that S&P could do that and I think S&P will likely go down to test its Jan low of 1812 pretty soon. If this level cannot hold, which is a high probability, it will be really ugly. As I said before, I won't be surprised to see S&P crash to 1600s this year. We are really facing a great risk of a substantial market turmoil in the next few months!


I personally have virtually cashed out all my positions in my own and my wife's 401k accounts where I have not much choices for hedging. For my trading accounts, I still hold a lot of quality stocks which I want to hold with dividend reinvestment for retirement.  But I have started to use covered call options to hedge against such positions to minimize the downside risk. I've also added more and more short positions against the whole market or other assets that have a great risk of going down. Having said that, since S&P held up about 1880 last Friday, there is still a chance that it may bounce back to challenge its recent high around 1950. If that happens, that's likely the most it can do with this rebound and this should be a great chance for those who wants to get out.


Just an idea about hedges via foreign markets.  My friend Frank has talked about shorting the Brazil stocks via EWZ or BRZU for many months, which is really a great spot-on call! I can also add one market that will likely continue to go down substantially from here: Canada via EWC. With the ongoing turmoil in the energy sector that Canada is heavily relying on, the Canadian economy will not be doing great in this environment. Its real estate is also facing a huge bubble and may also crash by a significant degree. At the moment, I don't see anything that is substantially positive for Canada, even the newly elected left wing government is doing something that will likely add more pain to its economy.

Why is gold a great asset to own

There was some interesting discussion about gold investment in the WeChat group. Indeed this is the most controversial area but I think there is some misconception about it. For gold, I totally agree that in general this is not something you should buy and hold for life as investment. Rather it should be held for the purpose of keeping the purchasing power of your money. I have seen very reliable research that demonstrated that for hundreds of years, the purchasing power in terms of gold has remained very constant. But I guess we all can agree we cannot say this at all for the paper money. The fiat money is simply a toy of the government and they love to play the toy to devalue it. Since the birth of the US$, over 99% of its purchasing power has been lost. Just think about how much less you can buy with it in the past few years when from the government CPI there has been virtually no inflation. From this perspective, I personally think that everyone should at least save some of your money via some physical gold. It is becoming more important now when all the governments around the world are competing for debasing their currencies. In this situation, only gold will shine!

Having said that, it dose not mean you can make some money by trading for gold but it must be done at a appropriate time. As for any commodities, gold investment is also cyclic and will go up and down via cycles. If you trade for gold at the wrong time, you will definitely lose money. But if you buy it at the right time, you can make really great money. The current gold bull trend started around 2000 and it had being going up every year for 13 years. No any other assets have this kind of track record. With this kind of long-term bull run non-stop for 13 years, any bull should stop to take a rest. This is something gold has been doing for the past 3 years and has corrected by almost 50% from its all time high of $1900 to $1000. But even with this scarily correction, gold has outperformed S&P by a huge margin: gold has appreciated by 300% since 2000 but S&P has gone up just about 50%. So I don't know how people can still say gold is not a great investment in the past 15 years. 

The real question is whether the current gold bull trend had ended 3 years ago when it reached to its all time high of $1900. Of course no one knows for sure but personally I'm convinced that gold has a lot more upside to go, much higher than $1900 when we finally see its top. I'm holding this view based on a few key points:

• As I mentioned above, all the countries are trying to devalue their currencies. This is a trend that will continue for quite some time given the current messy economies around the world and this is hugely positive for gold. Yes, the gold price is struggling at the moment based on US$ but if you look at gold via other currencies, gold prices have been keeping going up on almost any other currencies. In other words, you will not see a gold correction if you price gold in non-US$ currencies.
• Now we see more and more countries go negative interest around the world. Again, gold will continue to shine in the negative interest environment. I don't see this trend will reverse any time soon.
• Although sounds scarily with a nearly 50% correction, this is actually not abnormal at all for gold when it is in its uptrend. The last gold bull trend occurred in 70s-80s and the a bit more severe correction also occurred around that time. During the whole course of this bull run, gold went up parabolic from $35 to $800, a 22 times jump. But before its final running up, gold got haircut by half from $200 to $100 and only when almost everyone had lost faith of gold by this crash, gold started its epic final moonshot!
• As Merrill Lynch has famously said, bull will die during euphoria. Now did you see or feel any euphoria when gold went up to $1900 three years ago? I didn't see people lining up outside of gold shops to buy gold and I didn't encounter anyone who recommended me to buy gold at that time. This was exactly what had happened in 2006/2007 about the real estate that I saw the ads that invited people to go for free from New York to Florida to buy houses. And I also heard taxi drivers were talking about how to make money by buying houses! For gold, actually I even did some test in my office that I asked several times my colleagues whether anyone had bought any gold. Among about 10 people from different countries, none had bought any gold even when gold was almost like going up non-stop for years! I don't think this is a topping process for gold that we typically should have seen. Such a time will come when gold truly tops and that's the time anyone buying gold for investment should get out. But I don't think we are at that moment at present and it may be many more years away from now.

Market gives us another chance to take advantage of the Boeing snafu again

Exactly 3 years ago in Jan 2013 I make a bold call to "Take advantage of the Boeing snafu", when Boeing (BA) was suffering from a lot of negative news with a quite depressed stock price around $75. It was a lucky but very timing call as BA had since marched up very nicely to have reached as high as $158 recently. A double in 3 years for such a blue chip is by no means a small gain. Now we may likely get another chance to take advantage of the great negativity on BA at the moment to bet on it for good days in the coming years.


Together with the sharp correction of the whole market, the BA shares has started to skid recently and has dropped to its lowest altitude in 2½ years last week after it beat fourth-quarter estimates but followed with a disappointing forecast for profits and airplane deliveries for 2016. Believe or not, industry analysts have been expecting Boeing to cut 777 production for well over a year now, but when the company finally pulled the trigger, investors reacted as if they never expected the change. This is typically a market overreaction in my book. I'm not arguing that BA will not have some difficult time in the near future but this is a very temporary setback. After all, BA still has an existing $490 billion order backlog. On top of that, according to Boeing, there will be a long-term need for 38,050 new airplanes (up from 33,500 jetliners in the projection we cited back in 2011). While this is not something that will be manufactured by BA alone of course, you can bet BA will has a substantial portion to share to boost its bottom line in years ahead. With this 26% haircut from its top with the share price around $120, BA is paying a very respectful dividend yield of 3.7%. At this price, BA is not expensive at all and buying it at this level for long term may turn out to be a very good decision. Please note, I won't call BA a "Strong Buy" at the moment as the overall market is not very pretty, which may not allow BA to jump high immediately from here. It may continue to fluctuate for a while. But starting to accumulate its shares for long term for dividend reinvestment is not a bad idea at all!

A huge catalyst for the US housing that no one is talking about

Early this year, a bill was approved by the Congress and signed off by Obama, which was heralded as a bipartisan agreement that avoided another shutdown of the US government. As usual, it is not a simple legislation to provide more funding to the US government but a bill with over 2200 pages. You can bet buried in the bill there will certainly have something wanted by both parties that would not be easily agreed upon otherwise. There is one provision that will likely provide a huge boost to the US real estate sector.

 

For those who know some history, there was a time over 30 years ago that Japan was an economic superpower. They were so rich that they came to the US to aggressively buy a lot of US real estate assets. Triggered by this fear that Japanese could come to acquire their trophy assets like Rockefeller Center and Pebble Beach etc, the Congress passed the Foreign Investment in Real Property Tax Act (FIRPTA) in 1980 that required the foreign pension funds to pay much higher tax for investing in the US real estate. This had effectively deterred trillions of dollars in foreign pension funds from investing in the US real estate. Now this old tax has been lifted in this new bill, which may likely trigger a massive influx of foreign capital into the US real estate market in years to come. In addition, foreign pension funds were limited to owning a maximum of 5% of a publically traded US REIT (a trust fund for real estate investment) in the old bill, which has been increased to 10% without it triggering a FIRPTA tax.

 

This is huge folks! Think about it. Currently there is approximately $500b invested in US real estate but foreign pension funds are accounting for only less than 2% of that figure. However, there are trillions of dollars available in foreign pension funds. Just a slight increase of  this portion into the US housing market will easily mean tens of billions of new funds to the sector. This will be a huge boost for the ongoing but very anemic recovery of the US housing market. That’s why,  Jim Fetgatter, the chief executive of the Association of Foreign Investors in Real Estate, commented that  “this change is a huge deal and will increase the amount of foreign investment in US property, no question.”

 

So how we as individuals can benefit from this positive move in the US real estate. Well, if you are thinking to buy a property for own living or as investment, now is certainly a good time. Alternatively, you may put more money into the housing related stocks or funds. One area I’m particularly interested in is the REITs for healthcare properties, especially those involving senior cares. Omega Healthcare Trust Fund (OHI) is one of them. As you can easily understand, the demographic trend is a great friend for this investment as more and more US population moving into the elderly age band on a daily basis. This will tremendously increase the demand for healthcare in general and senior care in particular, including hospital facilities, senior communities, and senior care centers. OHI is specialized in this area. The market turmoil at the moment has caused blinded selloff in almost every sector and OHI is not immune to it. It has been hair-cut by over 20% from its high but I think this is overdone. Good news is that with this haircut, OHI will pay investors much more with a current yield close to 7%. The market will certainly continue to fluctuate and no one knows when this turmoil will end. But OHI high yield will ease some pain if it continues to slide down. I’m sure over time this will be a great investment for retirement, especially via dividend reinvestment that will welcome any weakness of its share prices as long as its underlying business is intact and producing sufficient cash flow for dividends. I don’t see anything significant that will negatively impact its business and the new positive change in the real estate tax law on foreign pension funds will only help! I’m adding more shares of OHI and will continue to do so, taking advantage of any weakness of OHI prices.