Economics: Science of Equations or Emotions?

During my MBA at Haas School of Business, UC Berkeley, my most favourite subjects were economics (macro, micro) and finance. I really enjoyed topics on how policy impacts countries' economic growth, currencies, interest rates as well as formation and success of businesses. Around that time I also developed interest in "behavior finance". Since then I have always wondered - Is Economics a science of pure math (Equations) or human behavior (Emotions) or mix of both?
In most of the academic history of Economics, it is considered a mathematically precise discipline. There have been few exceptions along the way when in 30's Maynard Keynes suggested that we should also consider Animal Spirits which was taken up as book topic by Yale professor and Nobel Laureate Richard Shiller. This years Economics Nobel was awarded to another practitioner of human side of economics - Dr. Richard Thaler (his book Nudge is my reading list).
In my opinion, Economics as science is best understood when we balance it with:

• Mathematics: Rigorous mathematical foundation
• Psychology: Human behaviors 
• History: Geo-political and stock markets

Upcoming week also happens to be 30 year anniversary of Black Monday (Oct 19, 1987). On that day DOW crashed by 22.6% (equivalent of more than 5000 point drop in today's numbers). This was largest fall on any single day. There has been extensive study done on causes of crash and many articles/books have been written. No one can precisely point out reason(s) why it happened. Few factors which have led to this largest crash were:

• Markets were at peak after nearly 7 year expansion
• Computers had started taking over large amounts of automated trading
• Republican president was in white house
• Month on Calendar was October (somehow crashes of 1929, 1987, 2008 happened in Oct)

Well - all four factors are applicable today. Does that mean we are heading for something similar and one should convert all of their holdings into cash?

Answer lies into "Psychology" aspect of Economics/Finance. Most of the recent indicators (consumer confidence, unemployment, inflation, interest rates) have been very good. While there is lot of noise in political spectrum, there is general indication that President Trump is going to reduce regulations and taxes which are generally good for growth (unfortunately its not good for environment). Fed is slow and steady in raising interest rates and most likely Trump would nominate market friendly FED president (re-appoint Yellen or nominate Kohn or Powell). Given all these factors, economy would keep on chugging with growth between 1.5 to 3% and that should keep markets at elevated levels for next 6 months. In fact there is fear of missing out which would push people to start investing. When all of these factors converge (similar to what happened in 2000 and 2007), that's time when we would have really reached peak. So the merry-go-round would continue for another six months. If Trump and congress are not able to pass tax reforms by Spring 2018, it may be completely different narrative. We will revisit that in Spring 2018.

Till then enjoy the the holidays. Happy Diwali to all my readers!

Bet on "BET = Biotech, Energy and Technology"?

My family and friends know that I like to take small bets almost on any topic. They also know that I win most of them. I did lose  big one with one of my colleague on Hillary vs Trump (no one would have imagined Trump would win except may be few folks like my colleague Arun). I ended up buying lunch for my colleagues for losing the bet. Investing is somewhat like betting. Depending on analysis and confidence, one is really making bets on companies doing well (or not) and investing (aka making bets) on stock prices going up (or down). Markets being at all time high, one must be wondering: Are there any sectors which are still worth making bets? Based on my analysis there are still opportunities in three of my favorite sectors - Biotech, Energy and Technology. In today's world of acronyms like FANG, I decided to call these as "BET". Let's look at why these three sectors?
Biotech: Two years back our family went thru experience on cancer. Since then, I have been doing quite a bit of reading on biotech field. I am reading The Emperor of All Maladies as well as follow various trials and FDA submissions. This field is really on cusp on major break thru for treatments for many fatal and rare diseases as well a finally some kind of cure for cancer. Last week Barrons even had cover-story on Gene Therapy With phase 3 trails for CAR-T, Gene Editing, Personalized medicines, world of cure is going to significantly change in 10 years. And biotech companies are leading the way. On investing side, this field is really brimming with activities with startups, big biotech companies as well pharma companies trying to transform into biotech companies (e.g Gilead buying Kite for $12B). Trial results and FDA decisions being "binary" event, one needs to be really brave, knowledgeable and lucky to make investing decisions. With this backdrop, here are my picks. Biotech ETF (IBB $330), Biogen (BIIB $320), Zogenix (ZGNX $38), Newline (NLNK $10), Regenxbio (RGNX $32). Most of these are extremely risky so best way to get exposure to biotech would be thru ETF (IBB)
Energy: With oil finally settling up above $50, I still stand behind my hypothesis that Energy stocks would have repeat of 2H of 2016 as I covered in my previous blog "It's time to get some Energy" So to avoid repeating myself, just check out my previous blog.
Technology: Outside of FANG, there is vast world of technology. So while FANG stocks are up significantly, there are still opportunities to grab. Personally I like small to mid-cap tech companies which are on upswing. With tax reforms almost here, tech companies are going to significantly benefit from worldwide economic growth as well as favorable repatriation rates. With trillions coming back to US, big tech companies would be on acquisition spree in next 2 years. Whom they are going to acquire? small to mid-cap companies to close portfolio gaps. Here are some picks: Nutanix (NTNX $22), AMD (AMD $13), Blackberry (BB from Oct 16, $10-11), FireEye (FEYE $17), Cloudera (CLDR $16), ServiceNow (NOW $100). With semiconductors back in action, SMH ($90) could be worth a look.
October is always tricky month - there are always surprises in Oct like political, economical as well as investing world. So to avoid getting caught in these surprises, I would recommend let the third quarter earnings season play out. It would give good indication on how companies in all three sectors have performed in Q3 and confidence level their CEOs are projecting, Then decide to do your own analysis and invest. Just don't "bet" based on my analysis!
It's also time to celebrate Holidays - starting with Diwali all the way to New Year! So enjoy the holidays with your family and friends!

Micron: New Nvidia?

Nvidia has been hottest tech company (and stock) for last 3 years with his stock more than triple in just 18 months. Most of the excitement is justified due to Nvidia's unique position in cloud players (Amazon, Google etc) as well as emergence of Artificial Intelligence in self-driving cars (Tesla and so on). So while Nvidia stock may not repeat last 3 years feat, there are other companies which could offer similar excitement. Micron (MU) has been on similar trend with its stock already tripling from under 12 to 39 in 18 months. Last week Micron announced record quarter with revenues growing at 91% compared to last year. Let's look at factors which are causing "commodity" players like Micron shine.

• Micron makes DRAM and NAND memories. In technology world, ASP (average selling prices) go down every year. Due to demand and supply imbalance, ASP for DRAM and NAND   have gone UP by 6-8%. That's rare!
• On demand side:
• Memory markets used to be driven mainly by PC industry. It's no more true since memory is being used across so many devices like mobiles, automobiles, robots, VR, watches, IOT devices and so on
• Average use of memory everywhere is going up (blame it on SW engineers)
• Applications are becoming memory intensive even if some of the compute intensive tasks can be handled by customized ASICs/GPU/TPUs
• On supply side:
• There are really only 3-4 players in this market - Samsung, Hynix, Micron and Toshiba
• It takes major capital investments and close to 3 years to bring on new supply
• Due to obvious benefits of quadropoly, none of the suppliers want to rock the boat by over-supplying the market

So in all, supply-demand would remain in favor of demand and hence ASP of memory would remain high or steady for some more time. 

With Sanjay Mehrotra as CEO, Micron got a seasoned CEO (and he is from Cal, Go Bears!) with excellent background in technology and business. So Micron company is in very good position. What does it mean to stock given it has already gone up so much. It is worth the investment? After results, it has already gone up by over 11% in one week. It has potential to go $60 in next 18 months giving potential return of over 50%. (MU management rejected Chinese offer 3 years back to acquire it at $33 which was right decision). I recommended it at $22 at start of year and would still stand behind my recommendation of MU at $38-$39. Given that Oct is here (worst month for stock markets), you may want to wait to see how it plays out over next 3-4 weeks and take small positions if stock goes down.

PS: Usual caveat of doing your own research before investing remains!

Savings: How much is needed?

I am not expert on retirement planning and have many years to go before readers of this blog would need to worry about "withdrawal" rate. However it's never too early to plan. Thanks to one of the friend, I came across few articles on "withdrawal" rate and how much one needs to save to maintain decent living standards.
Here are few assumptions to make:

• "Safe or risk-free" rate of return is about 3% (equivalent of coupon on 30 year US treasury)
• Protect "principal" as many years as possible
• Mortgage is paid off
• College expenses are over (and kids have settled down)
• No major health care expenses

With these assumptions, one could assume that $100K per year income is sufficient to live in areas like Bay Area (which is one of the costliest but most cosmopolitan areas to live in USA).  Assuming about $25K in social security benefits, one would need to create $75K per year in additional income from retirement savings. That would mean one needs close to $2.5M in savings to maintain the "principal" and still maintain a decent life-style. Of course many of these assumptions would change if one moves to less costly area or assumptions change.

If you are interested further, read on following.
https://www.thebalance.com/how-much-can-you-withdraw-from-your-retirement-portfolio-453997

https://www.fool.com/retirement/2017/07/02/3-serious-problems-with-the-4-retirement-rule.aspx

http://money.cnn.com/2017/04/12/retirement/4-percent-rule/index.html

https://www.financialsamurai.com/the-ideal-withdrawal-rate-for-retirement-doesnt-touch-principal/

Well if these are the savings one need, it's good to know now! As I mentioned, this is just my interpretation of various articles. One should consult proper financial advisor to plan!

Coming to Trump drama, there is never a boring week. Only President Trump has skills to antagonize NBA, NFL players, Obamacare supporters (including some GOP senators) and North Korean dictator Kim in same week. Despite all this drama, I am surprised that stock markets are making new highs every week. So are there any good "picks" in these frothy markets? Given that oil market is holding up well, I am still staying with my hypothesis on "energizing" portfolio.

Crypto-currencies: Fad, Fraud or Frontier?

As of last count there are more than 800 crypto-currencies and more are coming every few days. And unless you are hiding on another planet, you must have heard about BitCoin. Since then there are other "credible" (if you can call any of these) alternatives like Ethereum, LightCoin, Dash have come. Most of these are based on underlying technology called blockchain While the blockchain technology has tremendous potential and could at some point match buzz created by cloud, AI, VR, BigData, currently it is "(in)famous" for it's main application of digital currencies . So let's discuss if these crypto-currencies are Fad (aka bubble), Fraud (like Ponzi scheme) or New Frontier of Investing (like dot-com companies including Amazon in late 90s).
Let's understand basics of "money" or "currency". Why do humans need "currency"?
Currencies serve multiple purposes like:

• Medium of exchange (makes bartering much easier and friction-less)
• Storage of value (one can't store farm-output like grains or fruits to be consumed few years later)
• Investment (GOLD as investment)
• To finance countries/governments (ever heard of "printing money" by Federal banks)
• Movement of wealth (e.g. convert pesos into US $)

History of currency has evolved from stones, grains, commodities (salt, gold, oil) to most widely used  "paper" or "fiat" currency. Governments print these paper currencies, put a value on it ($1-$100) and put it in circulation. Before Nixon ended Bretton Woods International Monetary system in 1971, printing of money was tied to value of gold governments held. After this link was nixed, there is no reference to value of "paper" printed by any government other than what people believe it. This one move by Nixon helped US $ to become reserve currency of world since there was no other country which could match might of United State of America (which could change  in second half of 21st century). Now that we understand basics of currency, let's look at crypto-currencies. 

During financial crisis of 2008-2009, some people realized that money is not safe in hands of biggest (and supposedly safest) financial institutions of the world. And to save these banks from going under, governments would go to any distance and run printing presses to full capacity to flood the market with paper currencies. So some techies decided to come up with what they do best. Apply technology to create a solution. That's how BitCoin was created in 2009. Compared to gold which has been used as currency for more than 5000 years, BitCoin is only 8 years old.

Last few weeks BitCoin has been in discussions. First due to technology split (which created BitCoin Cash), then crackdown by Chinese authorities on digital currencies and now Jamie Dimon calling BitCoin as worst bubble than tulip mania. 

So coming to my original question: What are these crypto-currencies? Fad, Fraud or New Frontier of Investing?

In my opinion, they are bit of all three. 

Fad: Every few decades there have been new fad of investing. In 17th century, Dutch went crazy with their investing in tulip bulbs, In 18th century, genius like Newton lost significant savings in south sea bubble. Recently in 20th century, we saw dot-com bubble and 21st century started with housing bubble. This decade we are seeing bubble of "coins" with some of these gaining from 300% (bitcoin) to over 1000%.

Fraud: Out of 800+ crypto-currencies, very few would still be around 5-10 years from now. Some crooks are issuing "coins" and raising millions of $ without anything to support. These are equivalent of dot-com companies which raised billions just based on website. We all know how that ended. So be careful!

Frontier: Out of every bubble, some value gets created. From dot-com bubble, we saw survivors like Amazon, Netflix and few others. The investments also created massive fiber-optics infrastructure on which today's cloud movement is built. So there would be survivors coming out of crypto-currency bubble and surviving currencies could have multiples of value they are fetching today. Also block-chain technology would have lot more commercial applications. 

So as I said it's mix of all three and that's what makes it interesting economic, technology and behavioural investing topic. 

Preparing for "taxing" Times!

One would wonder why am I writing about taxes right now when there are more than 3 months left for year-end and another 7 months before tax-filing deadline. But that's the whole point. There is still some time left in 2017 to take advantage of some interesting tools available. In my previous blog After-tax 401K to Roth IRA I had written about how one could maximize savings in 401K by making after-tax contributions and how these after-tax contributions could be converted into ROTH IRA. Many folks call this as "back-door" mechanism to contribute to ROTH IRA (even though it is completely legal unless tax-reforms in discussions closes this backdoor).
Good news is that overall limit has been increasing over last couple of years as evident from following table. This means one could contribute upto $54K (or $60K if you are over 50) to 401K. After full contributions of $18K and your employer's match, it would still give you an opportunity to contribute 25K or so for after-tax contributions (which could be converted to ROTH IRA).

	Tax Year 2017	Tax Year 2016	Tax Year 2015	Tax Year 2014
Elective Deferral Limit	$18,000	$18,000	18,000	$17,500
Overall Contribution Limit	$54,000	$53,000	$53,000	$52,000
Catch-Up Contribution	$6,000	$6,000	$6,000	$5,500

Table courtesy of Motley Fool Article

In addition to this, there is another "hidden" but equally beneficial savings tool called HSA. Most big companies now offer these Health Savings Accounts. For all practical purposes, these work like 401k for medical expenses. You can read extensive details on how these accounts work in well-written Barron's article. Hope these articles would give you insights into various tools available to maximize your savings and make "taxing" times less "taxing"!

President Trump and team have finally realized that sometimes its better to work with your opponents than your own party leaders. In two weeks, he seems to have negotiated two deals with democrats. Trump, Shumer and Pelosi seems to be best buddies in these days and that may be good for America. Ryan and McConnell must be fuming in their chambers but they had it coming their way. Trump being Trump, no one can predict what he would do next but for now, he seems to have realized that to get anything done, he better work with democrats. If this continues, we may see long awaited tax-reforms before year-end. Would be good for companies (due to repatriation holiday and lower corporate taxes) and individuals with lower taxes. Let's hope 2017 ends with new less complex tax regime!

/Shyam

It's time to get some "Energy"!

First half of 2017 is over and earnings season would get full-steam in next 2-3 weeks. Given lack of major pre-announcements, there should not be any major surprises coming out of this season. With Fed taking dovish view on interest rates, markets seem to be loving "Goldilocks" scenario "not too hot not too cold". We already know that some sectors are getting hot like technology especially FANG stocks. At same time, it's worth exploring are there any sectors which are "cold" or "out of favor"? And of course one major sector which keeps on coming on radar is "Energy" sector. It started year on high hopes that OPEC deal in Nov would bring back oil markets in equilibrium and with Trump promises economy would grow closer to 3%. Both of these did not pan out in first half. US shell producers and Nigeria/Libya nullified whatever smaller effect OPEC deal had on supply side and due to lack of any concrete steps from Trump and Congress on tax reforms and infrastructure spending, US economy is still far away from growing at 3%. These two factors caused to oil slip back to $42 (before rising back to $46) and causing energy sector to be worst performing sector in S&P (down by over 12% in just 1H2017) So now question is where is energy sector headed. Here are some factors to look at to make prediction:

• US congress would one way or other decide on health-care before Aug and move onto other important topics like tax-reforms and infrastructure spending, This should get US economy growing closer to 2% (3% growth seems to be pipe-dream)
• US Fed would continue to be dovish making US $ weaker compared to Euro/Yen/Pound. This should give some boost to oil prices
• BRICs would continue to grow at healthy pace with India leading the pack (thanks to Mr. Modi's drive)
• Europe finally would start to grow with all major elections out of way. Merkel is almost guaranteed to win in Sept for another term
• With all these factors, overall world economy should be in reasonably good shape
• Opec would continue to make noises on "quotas" and US shell producers would continue to produce at record levels albeit at much lower costs. This would mean Oil would hover around $42 to $52 range for quite some time

What does all these means to companies in Energy sector. In general, they would be ok due to demand not falling off the cliff and supplies coming at lower cost point. So break even prices for all these companies coming down. Some of the companies/ETF to invest during this pessimism would be QEP ($9), SN ($6), HK ($6), MRO ($11.50), REN ($30), XLE ($65), RSPP ($33), APA ($48), TRGP ($44). The stocks and overall energy sector could have deja-vu like 2016 when they roared back in 4Q2016. Same could happen in 2H2017.

Have a great "Energy" driven weekend!

/Shyam

Tesla: Car company or Tech company!

Tesla is one of the most exciting company around and almost all of the credit goes to its visionary CEO Elon Musk. Over last few years, I have written two blogs dedicated to Tesla
Seeking Alpha by Adding Beta: Tesla = Apple of Cars?
Seeking Alpha by Adding Beta: Should Apple buy Tesla?
And give the action happening with first production Model 3 coming out this week and bear attack on Tesla stock bringing it down by over 10% in one week, promoted me to consider 3rd blog on same company! A ride in my friend's red Tesla (I call it as his mid-life crisis car) and seeing it in action also played a role!
Tesla - is it car company or tech company. This would decide if stock would eventually touch $1000 (from around $300 today) or touch maybe $500. Let's evaluate both sides:

Tesla as car company:
Tesla's major product is CAR and everyone love the product and willing to pay $1000 and wait for 2 years before they can get their hand on Model 3 (I am one of those). Which car company has this kind of power in today's ultra-competitive and ultra-choice world? It's current cars are exorbitantly costly and hopefully Model 3 would change that. It's also a low-volume car-company when you compare it with giants in car-industry like GM, Ford, Toyota and Volkswagen. Its considered as status symbol (even higher than owning BMW or Benz) with additional bonus of creating eco-friendly image. So even as car company, it has all things going for it. No wonder it's most valued car company in US with only 1% volume compared to GM (100K vs over 10 Million). However that's where story is about to change. Tesla needs to learn and perfect volume production and shipments to become a major car company (over million cars per year). That means it would need significant amount of capital to build and expand it's factories and investments in battery packs. Also it would have to build the charging stations across US to make sure that people would be able to take these cars across cities. So in nut-shell, it would have its growing pains to be a major car company and that would limit its valuation. It would still reach $100 Billion valuation by 2020 but further growth would be difficult if it gets valued as car company

Tesla as tech company:
In the ride I took in my friend's red Tesla, I am amazed with the technology integration - the big dashboard with so many knobs, information about surroundings shown right in front of driver, software upgrades to enable autonomous driving/parking features. Tesla seems to be way ahead of competition when it comes to smooth integration of technology, user-interface into final product.  It's at least 2-3 years ahead of all other car companies. It may be at least 1 year ahead of Waymo and 2 years ahead of Apple. It reminded me of Apple when iPhone was introduced exactly 10 years ago. iPhone was way ahead of all its competition (remember Blackberry - the first smartphone with clunky keyboard?).  If Tesla is able to license this technology to some of it's friendly competition, it would become a technology company (similar to what Google is trying to do with Waymo). Even as "Tech" company - Tesla has choice - should it follow Apple iPhone model of end-to-end integration into end-product or follow Google Android model where it could become supplier of "CarOS" for car companies. Both models proved to be very successful in smartphone market. Tesla seems to be heading towards Apple model.  I am surprised that when we compare Tesla with other tech companies, it's cheaper than Netflix, Priceline, Uber, Salesforce and valued at less than 1/10th of Google. So if markets start valuing Tesla as tech company, you are looking at stock touching $1000 in next 3-5 years giving it valuation of $200Billion.

My prediction is that it would be valued somewhere between car and tech company. Of course all of this would be moot if Apple ends up buying Tesla before 2022!
Have a great summer!
/Shyam

Amazon "Jungle" Keeps Expanding!

Normally I don't blog about my work and company I work at (Cisco). However this time I will make small exception. This week Cisco launched one of the biggest launches in company's history with Catalyst 9000, DNA/SDA and ETA. I am proud to mention that my team (along with some other teams) have been working on these intuitive products and solutions for last two years (Network.Intuitive). Congrats to all my team members!

Environmentalists would be very happy if real Amazon jungle stops shrinking (due to human activity) and expands in the way Amazon company is expanding its reaches. Amazon is one company which has proven everyone wrong. I am sure there is not a single person in the world (other than Jeff Bezos) who had belief in this company when it went IPO in 1997 and it's journey as public company over 20 years. If there is such person who had invested $10000 would be worth close to $5 Million today (assuming he/she has lived thru all ups and downs). No wonder Jeff Bezos would be richest person and first one to be worth more than $100 Billion before end of 2017. Hats off to Jeff! He is "Warren Buffet" of our generation! Amazon's decision of buying Whole Foods was based on principle of "Everyone has to eat" and Amazon can make it as simple as what it had done for millions of items to "grocery". The kind of impact this move would have is enormous even at macro-economic level in areas like

• Lower inflation
• Lower energy needs (less car-trips to malls and now grocery shops)
• Productivity gains (due to savings in time)
• Higher-paying jobs (from cash-register jobs to data analysis jobs)

Economists and even Fed governors would need to start incorporating "Amazon" effects in their models while projecting these macro-economic indicators. 

So where does Amazon goes from here - let's make some bold predictions for 2027

• Amazon sales would be over $250 Billion per year
• Amazon profits would be over $10-15 Billion per year
• Valuation  would be $ 900 Billion to 1 Trillion
• Could be most valuable company at that time

Switching gears to my thoughts on markets:

Generally markets have been slowly inching upwards with lowest volatility (as evidenced by VIX below 10). This is happening despite policy uncertainty in US. Would this be "calm before storm" similar to what happened in 1987, 1997 and 2007. There seems to be pattern with these years and we are in 2017. So watch out for direction post Q2 results and beware of Sept/Oct. It would be prudent to take some profits off from your gains and wait till late Oct to invest.

If you have to invest during summer, it may be good time to rotate from "best performing" sectors like "tech/bio-tech" to "worst-perfuming sectors" like energy. This is contrarian advice but goes with Buffet's principle.

Have a great weekend!

/Shyam

Recovery "kid" Stocks: Ready to become Adults?

For last few weeks I was developing an hypothesis of recovery "kid" stocks and their likelihood of getting into "Adult" valuations. So before I get too far, let me define the terminology:

Recovery: Stocks which were once high-flying crashed with stock prices below 15
"Kid" stock price: Stock price in range of 5-15
Adult stock price: Stock price generally greater than 20
With is criteria, during this earnings season which is just wrapping up, I was monitoring stocks in technology sector and after some research, shortlisted 4 stocks which have high chance of reaching "Adult" valuations.

1. FireEye (FEYE: $15) - this stock crashed from over 90 to close to 10 in 2 years. After changing CEO and business model from selling security appliances to recurring software revenues, this stock is on mend and could see 20+ price in next 12 months. This also happens to be in hot security area and with hacks like "WannaCry", companies are ready to invest in this part of technology. 
2. Nutanix (NTNX: $18) - this had very successful IPO with stock shooting to over $45 in few weeks only to crash after disappointing quarter. It's back to where company had IPO at. So essentially one could buy this stock at IPO with no premium. It is also in one of the hottest technology sector of hyper convergence (server, storage and networking). It has also started the business transformation of selling hardware to recurring software revenues. It has potential to go over 25 in next 12 months (provided they don't have similar quarterly mishaps). 
3. AMD (AMD: $11) - This #2 CPU company had already shot from $2 to over $15 in last 12 months. It has come down to $11 due to lukewarm response to new product introductions and looming competition from Intel and Nvidia. It's tough competition but it also has chops to play in one of the hottest semiconductor sector (GPU, AI, ML). It would take 2+ years to reach adulthood but in next 12 months, it could climb back to 15+
4. Blackberry (BBRY: $11) - To be honest, this caught my attention when one of the most vocal short (Andrew Left) recommended this for long position. After that I did some research and found a completely different company than what we know. It is in middle of business transformation from selling smartphones to selling software and services. And guess what - one of the oldest asset (QNX which I had used 20 years back in one of my product) had suddenly become a hot property in two sectors - Car-tech and IOT. This stock could double from here in 2 years.

First two companies (FEYE and NTNX) would cross $1Billion in next 12 months and other two are already over that threshold. Barron's had an article that when a company reaches $1Billion and growing, valuations start reflecting that in non-linear fashion. It happened to many many companies. So could any of these would become next NVDA, FB or AMD (in terms of stock returns). Well you have to figure that out yourself by investing.

(As always, these are risky recommendations so do your own research before investing
These are my personal opinions and do not represent company I work at).

Have a great weekend

/Shyam

And the Oscar goes to...

As the tradition goes, I must write blog on afternoon of Oscar night. Given my love for movies (a good movie in any language would do - that's why I have been Netflix member for more than a decade) and penchant for predictions, how can I resist making predictions on who would win Oscars. So I have picked six categories for predictions. Here are these:

1. Best Supporting Actress: Viola Davis (Fences)
2. Best Supporting Actor: Mahershala Ali (Moonlight)
3. Best Actress: Emma Stone (La La Land)
4. Best Actor: Denzel Washington (Fences)
5. Best Director: Damian Chazelle (La La Land)
6. Best Movie: La La Land

We saw La La Land in a nostalgic theatre in Santa Barbara during Christmas vacation. We all moved the movie (and songs). It is one of the highest nominated movie with 14 nominations. However it's Oscar haul would not match that of Titanic and others which won 11 Oscars. Most likely La La Land would by high-single digits.

Next week there is another action happening in City of Angels (LA). It's high-profile tech company Snap Inc is going IPO next week. Given my limited survey (with Yash and Isha), this seems to be very popular with high-school and college kids. Over last couple of years, it has added interesting and cool ways of communicating with friends. While it's audience is still small (1/10th of that of Facebook and 1/2 of Twitter), it seems to be highly engaged audience. At $20 Billion valuation at IPO which most likely would become close to $30 Billion by end of week, is it worth investing? Answer lies in predicting if Snap would become mini-Facebook (success!) or Twitter (not-so-much). At $30 Billion valuation, it would be worth 1/12th of Facebook and almost 3 times of Twitter. On this, I most likely would take my kids advice who are users of Snap and may decide to do small investment!

Happy Oscar viewing and Snapping!

/Shyam

Thank You President Obama: Yes We Did!

President Obama,

Thank for your being our President for last 8 years. It started with an inspiring speech in 2004 during democratic convention leading to that historic fall night of Nov 2008. On that night I felt so proud of my adopted country and Americans who elected first African American President. In 2012 and I along with my son volunteered for your campaign. Historians and authors would write many books on your achievements and your presidency. One could not do justice to your presidency just by listing few. But I could not resist listing few here.

• You saved American economy (and by extension world economy) from 1930's style depression by working with Fed and congress. 
• Presided over economy which did not had a single recession once it recovered from depths of 2009 recession
• Created over 15 million jobs during 8 years and brought down employment from over 10% to 4.5%
• Stock markets nearly tripled (as measured by DOW index of 6600 to nearly 19800)
• Enacted first major overhaul of heath-care system in America since 1960's. With "Obamacare" more than 22 million Americans got health care insurance
• Did not had any major terrorist attack on American soil
• Ended two costly and un-necessary wars
• Saved American car industry and banking institutions by bailing out even though these were unpopular decisions
• Under your presidency, innovation engine in Silicon Valley and across USA is in full action helping creation of hundreds of unicorns as well as some big-value "sharing economy" companies

No wonder your approval rating (60%) is one of the highest among departing presidents. You and Michelle inspired us all to aspire to do our best. Even in your final words, you gave us hope by saying that "At my core, I think we're going to be OK.". We never met in person but I always felt that I have a friend in White House. I personally is going to miss you. I am sure millions of Americans and people across the world are feeling same.

/Shyam

Adios 2016;Happy New Year 2017!

As we say Adios to 2016 and welcome new year 2017, it's time to take stock of 2016 recommendations done in first blog-post of 2016 and come up with new recommendations for 2017.
So here is report card of 2016 recommendations. In all, I recommended 16 stocks at start of 2016 with very clear indication that these are not for normal investors since they reflect my aggressive style of investing (after all blog is called "seeking alpha"). In all out of 16 recommendations, 6 were negative and 10 were positive. Losses range from 100% for LNCO, 94% for SUNE to 35% for FOLD. Gains range from 160% for VEDL, 144% for CHK-PD to 14% for OIL. In all assuming approx equal amount was invested in all 16 recommendations, the portfolio would have returned 28% not counting any dividends etc. This beats S&P by approx 18% which seems to be overall good performance. Of course it came with extreme volatility especially during months of Feb and Jun (around Brexit time). So as I have mentioned, these recommendations are NOT for risk-averse investors.
Now let's look at what's ahead for new year 2017. Here are some macro predictions.

• DOW would finally cross 20K in Q1 and go on breaking 21K by year end.
• S&P would break 2400 by year-end
• 10-year treasury yield would hover between 2-3%
• US unemployment would remain below 5%
• OIL would be between $40 to $65
• US tax-reforms would bring down both corporate and individual taxes thanks to Trump and GOP controlled congress
• Merkel would win her 4th term as Germany's chancellor

With this macro background, here are 17 recommendations for 2017

• Technology/Telecom/Solar: AMD ($11), MU ($22), VOD ($24), SPWR ($6.5)
• Energy: CRC ($20), LGCYO ($7.5), REN ($39), SUN ($26), ETE ($19), CVRR ($10), SN ($9), MRO ($17)
• Biotech/Pharma: PTCT ($10.80), ENDP ($16), VRX ($14)
• European Banks: DB ($18), BCS ($11)

As you can see, most of the picks are either in Energy, Biotech or beaten down stocks like European banks or Valeant/Endo type possible turnaround candidates. All of these are very aggressive picks and high-beta stocks so my usual disclaimer (do your own research before investing) stands.

Wish you all Happy, Healthy and Prosperous New Year 2017!

/Shyam

Trump Inc Startup: Ultimate Unicorn

Two weeks back I predicted that DOW would reach 20K in first quarter of 2017. Looks like it may touch even before end of 2016. I am sure many folks who are investing in stocks are happy with that and must be thanking Trump for that (even though he is not even President yet).
Last week Trump met bigwigs from Technology world for the first time. Given than all except one were against him, it must have been an interesting meeting. Conpiciously other than Palantir and Uber, none of the so called Unicorns were present. Most of the presence was by big companies with market caps over $100 Billion. Talking about Unicorns, "Trump's Presidential bid" must be the ultimate unicorn of all time and majority of folks missed seeing this unicorn which was in front of us for last 18 months. Only few folks from technology - Peter Thiel being one of them (no wonder Peter made big money in Paypal, Palantir and Facebook).

So let's look at "Trump's campaign" as startup and evaluate its success:

• It was founded by Trump about 2 years back funded by his own money including sweat equity. After all he traveled all over USA and gave countless speeches
• He took on big establishment on GOP side as well as democratic side
• He raised money from grass-roots (aka kick-starter style)
• He smartly targeted spending of ad dollars where it could get maximum ROI similar to startups would do with limited resources
• He spent half what big company "Clinton Inc" spent
• Against every one's advice, he spent last few hours in Michigan/Wisconsin/Pennsylvania states where pundits had said it was impossible for Trump to win these states (and these are the states which made him President-elect)
• He ran the campaign single-handed and ruthlessly (don't we know the style in which Steve Jobs ran Apple during early years?). I think this may be necessary for startups.
• He effectively ended "Bush" and "Clinton" dynasties similar to what Amazon is doing for so many old-world businesses
• And it had a blockbuster IPO on Nov 8, 2016. 

Now that Trump Campaign Inc has gone IPO, it is time for Trump to behave like a public company and be accountable to his shareholders (American Citizens).

Trumponomics: DOW 20K

Now that I have started writing blog again, I have decided to get into habit of writing blogs every couple of weeks. Somehow I let complete election season go without writing much and expressing my views. Anyway, based on various bets I lost (4 to be exact), my friends (and family know) whom I was supporting in elections. I really wanted to see first Madam President. But alas, that did not happen due to some campaigning mistakes (and little bit of arrogance to ignore Michigan and Wisconsin).  Now that Trump is going to be our President, I am fully on board in supporting Donald Trump as President of USA starting in Jan.
What surprised me was the margin of his election victory and how markets took U-turn (for better) after hearing his acceptance speech. No-one would have thought that DOW would cross 19K if Trump wins. But here we are - all three indexes at all time high. Oil is back in action heading towards $60.

What is Trumponomics:

• Big tax cuts - hoping that trickle down effect would help everyone
• Big infrastructure spending
• Big defense spending
• Big noise on trade protections (this would be mostly noise to scare of many policy-makers in other countries to behave)
• Bring money parked outside US into US by paying small tax
• Low interest rates (FED would adopt go-slow as they have been doing over last 8 years)
• Symbolic job returns to US (similar to Carrier deal)
• General sentiment about "Make America Great Again"

With these basic principles of Turmponomics, I won't be surprised if DOW crosses 20K and all other indexes keep on reaching all time highs over next 3 months. The question is till when this merry-go-round will keep playing?
Given this, my current recommendation is to go long on energy stocks. Even if they have rallied recently due to OPEC announcement, there is still room to run. Normally I prefer small-caps because they outperform significantly if times are improving (but also have risk of going bankrupt). Few stocks I have been monitoring are: Sanchez Energy (SN: around $8.40), AMD (around $8), Sunpower (SPWR: around $6.50), CVRR (around $8), SWN (around $10-11) and ERX (at around $35)

That's all for now. I promise to write my blog more often. 

/Shyam

After-tax 401K to Roth IRA

Have you ever wondered how to save more (beyond $18K IRS limits) and also convert to Roth IRA? And how about having flexibility of using those funds for big-expenses like kids college? Well – thanks to recent tax-law changes, there may be an answer. However as always, it’s hidden in complex US tax code. Thanks to some excellent research by my colleagues Anand and Venkaiah, here is simplified version.

All of us know what 401K means and how it works. The standard limit on 401K contributions is $18K per year ($24K if you are 50 or older). However you can still contribute after-tax money to 401K. Limit for total contributions from all sources and to all retirement accounts is $53K per year ($59K per year if you are 50 or older). This includes 401k, ROTH 401K, after tax 401K and any employer matching contributions.

e.g. For an individual under 50, let’s assume following:

• ·      Employee contributes $18K per year
• ·      Let’s say at 5% employer match, employer contributes $10K per year (would depend on many factors so use this just as illustration)
• ·      That means, one could still contribute 53K – 18K – 10K = $25K in after-tax 401K
• ·      As a side note, if you contribute to after-tax ROTH 401K, it would be counted towards $18K limit

Now how to optimally utilize these after-tax 401K contributions?

Note that these are after-tax contributions means they are NOT tax deductible but any gains are tax-deferred. Also these contributions normally must happen from your regular pay-check means your company needs to have these in their 401K plans. Depending on the plans, you can convert these after-tax contributions to Roth IRA in following ways:

• When you leave company or retire or
• In-plan conversions (depending on your company plans)

When you convert, to make this a non-taxable event, you can opt for after-tax contributions to go to a ROTH IRA and any associated gains to go to a traditional IRA

Let’s continue the example we took:

• ·      Let’s say you are making after tax contributions of $20K per year for 5 years totaling $100K in after-tax contributions
• ·      Over 5 years this account had gains of say $40K
• ·      At end of 5 years you decided to convert this. Here is how it could be converted
• o   $100K would go to Roth IRA
• o   $40K would go to Traditional IRA

Traditional IRA withdrawals in retirement are taxed at ordinary income tax rates. Roth IRAs earnings and withdrawals are generally tax-free.

Depending on your situation, you can decide when to convert after-tax contributions but in general early the better if plan allows. Contributions in Roth IRA, can be withdrawn penalty free after 5 years and one could even withdraw the associated gains penalty free for some expenses (including college expenses) after 5 years.

Hope you got some useful information to think about. 

For more information, here are some references:

http://www.nytimes.com/2015/09/23/your-money/401ks-and-similar-plans/irs-ruling-makes-after-tax-contributions-more-attractive.html

https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans

http://news.morningstar.com/articlenet/article.aspx?id=682209

http://www.doughroller.net/retirement-planning/pros-and-cons-of-after-tax-401k-contributions

Disclaimer: This blog is only for information purpose only. Before you take any specific actions, please do your own due-diligence including discussing with your advisor.

/Shyam

Trumped and Berned

New Hampshire gave a notice to USA - be a ready to be Trumped and Berned!
Get months back no one would have thought that it would come to this. Everyone was thinking that it would be 1991 again where Bush and Clinton would cruise to win their party's nomination and eventually Hillary Clinton would become first Madame President. In my opinion, that would still be the case (Hillary becoming president) but the path looks much more curved than straight line. Of course that makes this election season very interesting. Anytime I put on CNN, they are only talking about primary elections - as if nothing else is happening in world (and CNN calls itself as world news headquarters!)
Similar to elections, markets are also becoming very unpredictable with hundred points move on DOW becoming norm. Banks, energy, new high-tech (like LinkedIn, Yelp, Twitter and so on), commodities, Chinese markets all of these are predictably going down. Currencies are doing exact opposite of what central banks are trying to instrument (check BOJ's negative rate impact on Yen). It feels like currencies are racing to the bottom to rejig their economies. Financial and investing world is much more scary than first half of 2015. So the question is - is trend of going down continue or we are near bottom. No one knows. But if "7-year" pattern continues, we may be near bottom as we had seen during March 2009. But in these uncertain times, it's best to be on sidelines till markets sort themselves out. Till then enjoy the political circus!
/Shyam

SuperBowl 50!

Welcome to Bay Area for Super Bowl 50. This much awaited yearly show is in town and just 3 miles from where I work (@Cisco). In fact it is so near of Cisco's campus that Cisco's parking lots could be used to park cars and walk. It's great to have such a major event in heart of Silicon Valley. Last week we went to SFO to enjoy the excitement. Tomorrow we would enjoy the show at one of our friends place (tickets are not available and affordable with lowest ticket price of $3000 if you could get it). By some estimates, Super Bowl would boost Bay Area economy by nearly $800 Million. Nice sum of change when tech industry seems to be losing some ground (especially when high-fliers like LNKD and DATA crash by over 45% in one day).
Given it's February and longest political show on earth is about to get into high-hear,  it's time for some predictions

• Carolina Panthers would win Super Bowl 50 (even thoughjwin by Denver Broncos would capstone Peyton Manning's illustratious  career)
• Next week's New Hampshire Presidential Primary could give clear direction to Republican nominee process and seal Mrs. Clinton as Democratic nominee. So here is my specific prediction
• Rubio would emerge as winner (and close 2nd) in NH primary - this double definably decelerate Mr Trump's momentum and could even de-rail his presidential aspirations completely. I am still behind my original prediction that Mr. Rubio would become Republican nominee against Mrs. Clinton as Democratic nominee. All of this would be sure decided on Super Tuesday (Mar 1)
• Markets would continue to be volatile (DOW going up or down by 100+ points) for next few weeks and may settle down in March. Once Fed gives clear indication that it is on hold for some time may give markets some breather and possible have a leg up in Spring/Summer

March is also critical for our family with Yash's college admission results coming in. Yash had worked really hard all throughout his school years and college applications. We are hoping that he gets into one of his dream colleges. Best of luck Yash!

/Shyam

Happy New Year 2016!

It has been few days since new year started. It's time to take stock of performance of 2015 recommendations and come up with some new recommendations for 2016. As I mentioned in my previous blog, 2015 has been bad - really bad. Overall portfolio performance was minus 10%. Only 3 winners and 12 losers. Best winner was SRPT (up by 240%) and worst was LNCO (down by 88%).
Nothing to be proud of except the fact that my inspiration in this field Mr Buffet was also down by 10-11%. Time to forget 2015 and look forward to 2016.
Even 2016 started with turbulence in markets with first two days markets being down significantly due to various factors - main being China. However IMO, this provides great opportunity for taking some positions. So here are my 16 recommendations for 2016 - most of them are concentrated again in Solar, Energy and Biotech.
Biotech: BLUE ($62), CMRX ($9), CLVS ($32), FOLD ($9), PTCT ($29)
Solar: SUNE ($5.5), TERP ($11.50)
Energy: OIL ($6.10), CHK-PD ($19), LNCO ($1.10), TDW ($6.6), WLL ($8.8)
Misc: WYNN ($66), VEDL ($5.5), NRG ($11), MU ($14.5)
As you would notice, most of these are unloved stocks for reason. So if they survive 2016 (and that's big IF), they could offer big upside (if you are willing to ate risk of equally big downside).
2016 is also interesting with Presidential politics. Most likely election would be between Clinton and Cruz with Clinton winning the presidency.
That's all for now. Happy New Year
/Shyam

May the Force be With You

I have taken such a long break from my blogging that it almost felt like waiting for Star Wars movie or interest rate hike by FED. Both events: new Star Wars movie after 10 years and interest rate hike by Fed after 9 years. What a timing - both these events happened in span of less than 48 hours!
These events and upcoming new year inspired to start blogging again.
Year 2015 have been tough for my investing suggestions. I just looked it my recommendations and collectively they are down by about 15% (assuming shadow portfolio of equal amounts invested at start of year). It's bad - there is no other way to say it. I almost started doubted my own analysis.
Hopefully you did your own diligence and did not lose as much. But that won't deter me to continue my passion of analyzing market trends and come up with some investment ideas. Here are few. I will follow up for 2016 recommendations in next blog.

• Sunny outlook for solar and wind - This was another significant development last week that congress extended green energy tax credits by another 3 to 5 years (they were supposed to be expired by end of 2016). This gave a major support to solar stocks many of them doubled in 1 week. However there are still some "relative" bargains. I am considering SUNE ($6.5), GLBL ($5.5) and TERP ($12). These are from same management team which really messed up with their balance sheet and got punished by market by pushing these stocks by nearly 70-80% in span of 6 months. Finally management wised up and started to pull back. This should reduce their bankruptcy risk and could give these stocks at least 50% run in 2016. For GLBL and TERP, there is nice 10%+ yield (provided they do not cut)
• Biotech - this has been one of my favorite sector. Given trends like older demographics, better early detection mechanisms, wider covered pool due to Obamacare and FDA willing to grant approvals for unmet needs, this sector had good long-term prospects. However picking winners and losers are like picking lottery numbers unless one has excellent background in this area (which I don't). Having said that I am excited about biotech focused on cancer areas (due to some personal reasons) and especially interested in immunotherapy. Few names to mention are BLUE ($60), KITE ($60) and risky company CLVS ($32). I also like PTCT ($32) which focus on unmet need for DMD
• Energy - this has been bummer (and cause for major losses) for me and I have been completely wrong about quick recovery in energy sector. Given that OPEC has absolutely no influence and shell revolution in USA, oil glut would continue till crude falls closer to $25. It's repeat of 1980's. So it would be at least year or two before energy sector recovers. If you have long-term horizon (5+ years), then picking XLE around $50 may be wise move.

Coming back to StarWars - it broke all time records and is on way to become only 2nd movie to worldwide gross of $2B. Only Disney can put such an excitement in 30 year old franchise. I just caught up with Episode 4, 5 and 6 over weekend and now looking forward to seeing "Force Awakens" today evening. Next blog would be on 2016 recommendations - till then let the Force be with you!

/Shyam

Modiji: Welcome to Silicon Valley

Yesterday me and Yash went to San Jose Airport to welcome India's PM Narendra Modiji. It was great experience to see one of the most popular world leaders in person and have slight of hand-shake two times. Yash managed to get a selfie also:-) The weekend is full of events culminating into Community welcome at SAP center which we plan to attend. It would be fun.
What a change leader can make in terms of country's perception at world stage. 2 years back India was slowing, stuck in lack of governance and despite her potential no one was paying attention. After Modi became PM, he took on himself personally to travel extensively and use his charisma to change India's image on world stage. And what a success he got. He is only leader in world (other than Obama and Pope) who can fill a stadium of thousands of people to listen to him. His policies such as Digital India, Make In India, Clean India and many others have captured imagination of Indians across the world. No wonder he has over 80% approval ratings. Now would all of these result into real change for India and Indians. I think so. Right now India is fastest growing major economy in world (more than China) and if India can maintain 8+ % GDP growth for next 10 years (assuming Modiji become PM for 2nd term), it would make wonders in reducing poverty and adding significant wealth and make India 3rd largest economy in world before Modi retires from active politics (in 10-12 years). For now, Indians from all over the world are proud of calling Narendra Modiji as their leader! Welcome Modiji to Silicon Valley and looking forward to hearing you
/Shyam

Alphabet of Companies!

Google is now Alphabet - very interesting move by one of the biggest company in the world and it came out of nowhere. This may be in works and may have been triggered by motivation of creating CEO positions for very capable candidates like Sundar P and others. Congrats to another Indian CEO at major tech company. This move by Google triggered me thinking. What are various companies which would complete Alphabet's A-Z? Here is my take:

A: Airbnb (Hospitality)
B: Baidu (Search in biggest market)
C: Calico (Biotech/Life Sciences)
D: Dropbox (Storage)
E: Expedia (Travel)
F: Flipcart (India's biggest online marketplace)
G: Google (of course)
H: Hulu (complementary to YouTube)
I: Instacart (Grocery shopping)
J: Jawbone (Wearables)
K: Kickstarter (Fund-raising)
L: LinkedIn (Professional social network)
M: MonDB (Database for app developers)
N: Nest (Home Automation)
O: OpenTable (Online restaurant reservation)
P: PayPal (Payments)
Q: Quora (Search based on Q&A)
R: Rackspace (Cloud provider to fight against AWS)
S: Snapchat (social, social and social)
T: Twitter (Social and newsfeed)
U: Uber (City-travel)
V: Vimeo (Complementary to Youtube)
W: Wing (Google company focused on Drones)
X: Xerox (this was difficult choice but buy it for patents)
Y: Yelp (customer reviews)
Z: Zenefits (Cloud based benefit provider)

I am sure there could be many such lists. Would be interested to find out how many of these end up being an "Alphabet" company!
/Shyam