Hi Again,
Two weeks ago, I stated that according to the fundamentals we are facing some dark clouds but do not expect the market to act rationally. The market did not act rationally but we can laugh all the way to the bank! One rational thing happened last week and what was that? For the first time, people stopped chasing ‘fang stocks’ (Facebook, Tesla, Amazon etc.). Last week was a fantastic week for our portfolio (see the Scoreboard bellow)! On Friday, after the market close, top level pros of CNBC were asking one another if we were in the twilight zone. Why? For no apparent reason, commodity stocks started to skyrocket! I asked everyone to get in to commodity stocks more than a month ago but I said that prices will fall and as prices will fall buy more and in 3 to 5 years, you will make a lot of money but they are going up already. Do NOT expect this to continue-more buying opportunities will come our way.
Two weeks ago, I taught you how to buy a hedge without putting in a single dollar by selling calls and using that money to buy puts. Well, last week, a hedge fund did that with 20 million shares and they did not pay a cent (except for commission). They lost (just a paper loss which they will recover later) about 10% on their stocks but gained 100% on their put options! Brilliant! The stock was a big biotech company. Ever since that 32 year old CEO of the Armenian American Hedge Fund raised drug prices by 5,000%, all biotech and healthcare stocks have been in a bear market. Divine Justice! Even though we did well last week, do not fool yourself, to borrow a phrase from Greenspan, this is “irrational exuberance”. Now with respect to our interests, here are some amazing highlights from last week:
· TWITTER- Last Sunday I mentioned that as I predicted Jack Dorsey was appointed CEO of Twitter and on that news, in one day the stock went up by 6.99%. For the past few months, this has been one of the most hated stocks in the market. As I have said before, as in mundane relationships, on Wall Street, hate can change to love overnight; and vice versa. I have seen this for 30 years on the market! This is why I am a contrarian. Even after the 6.99% rise, on 10/6/15, experts were saying that most analysts are worried about ‘corporate governance’ at Twitter. In my mind, it is easily fixable. There is a rumor that Google, Apple or Facebook might buy Twitter. Then what happened on 10/7/15, Saudi Prince Alaweed doubled his stake at Twitter to 5% and now he is the #2 owner of Twitter and he owns more shares than the founder and CEO, Jack Dorsey! This Saudi Prince is well respected on Wall Street and he is known to pick ‘stock bottoms’. He still owns a major share of Citibank, 21st Century Fox etc.. His business acumen and shrewd entrepreneurial prowess have earned him comparisons to American investor and business magnate Warren Buffett. Due to his prominence as a businessman, he was acknowledged by Time, who labeled the Prince as the "Arabian Warren Buffett". In June 2015 Forbes listed Al-Waleed as the 34th-richest man in the world, with an estimated net worth of US$28 billion. (Wikipedia). When the Saudi Prince made this announcement, on that day alone, in 6 hours, Twitter went up another 8%!!After the CEO announcement, I was waiting for Twitter to go down so I can buy some call options on Twitter (apart from the stocks I own) but that did not happen; why? Twitter went up every single day! Last week alone (10/5/15-10/9/15), Twitter went up by 16.38%! If you put $1,000,000 in to a 10 year treasury, you will earn $20,000 in 365 days. If you were lucky enough to put $1,000,000 in Twitter on 10/1/15, in just 9 days, you would have gained $272,690.44 (27.27%)!! I expect the price to decline sharply when people come to their senses. This was mostly due to short covering.
· Freeport McMoran- Analysts used to call this the worst stock in the market about 2 months ago and at that time I asked you to start ‘nibbling’ (buying) it. Then Carl Icahn bought a big share of the company. Last week, on CNBC, Carl Icahn was saying that he wanted the price to drop for a year or so he could buy more and then make a lot of money in 3years. I had the same wish for all of you. Luckily or unluckily, like Twitter, it kept going up! On 10/8/15 alone this stock went up by 9.97%! This week alone, 10/5/15 to 10/9/15, Freeport went up by a WHOPPING 34.72! So $1,000,000 invested in Freeport on 10/2/15, you would have gained $340,720 in 5 days! This too will not last. All this is due to short covering as well as algorithms and computer robots gone crazy. From the bottom of my heart I want to thank all the 23 year old idiots who created those robots! Also Morgan Stanley upgraded Rio Tinto and BHP-which I think was quite premature. Even though I did not put Rio Tinto (UK based commodity company), I bought Rio for the long term as it pays a dividend of 6% about 1 month ago but I think it is too risky for you. I will not be surprised to see the price drops 50% to 80% soon. Wait for the profit takers! Then, like Carl Icahn, buy more. If it comes out that Chinese economy is weaker than expected, this will hurt Freeport. China consumes 40% of all supplies. They are heavily in to high yield bonds so if that bond market blows up, that would be a terrible blow to Freeport. Like Mr. Icahn, I too have hedges against the high yield market. Buy puts on HYG! If you took my advice and bought Freeport on 8/25/15, today your holding would be up by an AMAZING 65.32% in just 46 days!
· This is how some of our stocks did last week (10/5/15-10/9/15):
§ Twitter- up by 27.27% in 5 days.
§ Freeport McMoran-up by 34.72% in 5 days.
§ GM- up by 5% in 5 days.
§ Ford-up by 6.94% in 5 days.
§ GE- up by 6.83% in 5 days (after the tremendous run between 9/28-10/2)
§ Exxon Mobil- up by4.59% in 5 days.
§ Alcoa-up by 13.63% in 5 days.
§ Apple-up by 0.11%. (see story below)…Opportunity!
· APPLE- As I have been saying in the past, on Wall Street, love can turn in to hate in an instant. A month or two ago (or prior), it was impossible to find someone who did not love Apple on Wall Street. Now almost everyone hates Apple. Kevin O’ Leary, Shark Tanks Billionaire who thinks he is an expert on stocks was saying that Twitter was dead prior to its astronomical rise of the stock also mentioned that Apple has no future now. Why? His 18 year old son told him that he hates Apple music. How stupid!
For the past year or so he would come on TV and say that Apple was the best stock ever. On 8/25/15, when the market crashed 1100 points, Apple CEO emailed Jim Cramer of CNBC to let him know that IPhone sales are growing rapidly in China and that is what stopped the carnage-not limited to Apple. Recently Nike earnings report also show that China sales are doing great. Why? These American products are status symbols for the Chinese. As I said a few days ago, Apple had the highest short interest hike of all stocks with a rise of 14 million in one week. When I was talking about all the stocks that went up sharply last week due to short coverings, did you wish you were able to buy them prior to that rise? Now here you have that with Apple. Next time Apple would report earnings would be on 10/27/15. There is a very high probability that Apple would skyrocket around 10/27/15. I looked at call option prices but they are too rich for my blood but this means you can make a lot of money by writing options on Apple.
· OIL & COMMODITIES- Oil (WTI) rose to $50 per barrel last week. Even though the fundamentals show that demand for oil is weakening and the supply exceeds demand in a huge manner. Last week, once again, Goldman Sachs repeated that WTI would go down to $25. Then why did oil rise so much lifting all energy stocks? MIDDLE EAST! To paraphrase T Boone Pickens, “there is a new sheriff in town in the middle east now”. He was talking of the Russian intervention in Syria. Every Middle East tragedy drives up the price of oil but this is very artificial and psychological. We have been talking about how Saudi Arabia’s refusal to lower their oil production was meant to drive oil fracking companies in the US to bankruptcy but they also drove Russia in to a deep recession. Some countries have wars to get out of recessions. This is hurting Saudi Arabia too. People who watch financial markets say that even to survive on a day to day basis, they cannot reply on the current account anymore and they are selling their US Treasuries. They even liquidated their assets at Blackrock. Do not expect the price to remain high. Markets fluctuate! 90%+ oil companies are struggling to survive with oil prices under $50 so I hope these companies have the horse sense to make use of this current price of $50 on WTI to sell oil futures. For example, they can hedge in the futures market to keep selling oil at $50 for a long time but some of these companies may have the knowhow or the resources to hedge. Let us say that a company would be able to sell a million barrels in December 2015, in the futures market they can sell a million barrels for $50 (or more) for December 2015 and deliver the oil in December 2015.
· Last time I mentioned that I bought some call options on Dow30 and if the Dow30 goes to 18,000 by 1/31/16, my options would rise from $0.48 to $9. At the time I purchased those options, the Dow30 was around 16,000 and on 10/9/15, the Dow30 closed at 17,080. On 10/9/15, the options closed at $1 (100% ‘paper’ profit +) but this shows that still most people do not expect the Dow30 to go up another 920 points in 3.5 months when the Dow30 rose 608 points last week in 5 days! Never expect the market to act rationally! Algorithms and computer robots are going on historical data so this is good for us.
Looking forward to another very interesting week; why? Many companies will start reporting their earnings this week. If Apple drops below our initial cost, buy more because of all those shorts and negativity I believe that Apple will surprise Wall Street with higher than expected earnings and revenue and when people run to cover their shorts, the price could skyrocket.
The newspaper, Barron’s, is the most important paper one could read when it comes to the stock market. I read it religiously on Saturday because it moves the market on Monday and this has been the case for 40 years. When CBS 60 minutes had a show on Donald Trump he showed that his office- full of magazines with him on the front cover. This week’s Barron’s had Trump on the front cover too and I wonder if Trump will add this to his collection. They had a big picture of Trump and the caption “TRUMP- the Art of Baloney-Don’t gamble with this guy”. Barron’s tried to contact the Trump organization many times, and they stated they will get back but didn’t. Surprised? I remember the 1990s very well when an analyst (working for a Wall Street firm) stated that Trump is driving his business in to bankruptcy and Trump got that guy fired and he made sure that guy will never work as an analyst again. Prior to that he raised a lot of money (promising 14% interest) saying that he is building the 8th wonder. The analyst was RIGHT! He defaulter on the FIRST interest payment in October 1990, Taj declared chapter 11 bankruptcy in the Spring of 1991! This was the first of the FOUR bankruptcies that Trump casino related entities filled over the next two decades. What happened to the analyst this idiot ‘destroyed’? First he lost everything; and then he became extremely rich in a different business and now owns a 15 room mansion! No one has the guts to say that they like Donald for having Hitler like policies but they say that he speaks his mind. Remember Germany in the 1920s? Thank you Mr. Trump for destroying the Republican Party for the next decade! Follow in the footsteps of Billionaire Ross Perot who destroyed Herbert Walker Bush.
Have a great week!
Fernando