"GUI" of Goldilocks Economy!

In today's world of UI/UX, people don't normally talk about its original term of "GUI" which means Graphical User Interface. In App world, it's all about UI/UX. The first GUI based computer was invented in PARC in 1973. Apple later popularized it with MAC. Apple then changed GUI to UI/UX with iPhone introduction by unleashing the App world. Now most of the companies developing apps have separate groups focused solely on UI/UX! But let's talk about another GUI!
 GUI of economy is about (GDP) Growth, Unemployment and Inflation. And given recent Q1 numbers demonstrate that we are in "Goldilocks" economy - not too hot, not too cold. Let's look at:

GDP Growth: On back of major market churn in Q4, 2019 started with fears of growth falling below 1%. Slowly as quarter progressed, growth forecasts got revised to 2%. However actual GDP growth came in at 3.2% which was much stronger than anyone (except may be markets) was expecting. The adrenaline of Trump tax cuts got over in 2018. So is this growth now real? Only rest of 2019 would tell the real story if US economy can grow 3% sustainably.

Unemployment: At 3.6%, its lowest unemployment in 50 years. Even in roaring 90's unemployment did not reach this low. What's driving it? Wasn't it supposed to be other way in which automation, robotics, trade, manufacturing moving China/Mexico supposed to be killing jobs. Yes - all of these factors are killing old jobs but at same time creating new opportunities like "social economy" jobs, retail jobs moving to Amazon warehouse jobs, travel agent jobs moving to "Instagram moment" jobs. America is best in re-inventing its economy every 2-3 decades and this time is no different.

Inflation: 50 year lowest unemployment is supposed to create inflation - that's what get taught in economy classes in colleges. So why is inflation still at 1.5% and having trouble reaching fed target of 2% and cause Fed to worry? Well - this is something to be researched and could be a good topic for PhD in Economy. My hypothesis is that forces of automation, geek economy, "flat world", mobility of goods and people, plenty of energy sources (unlike in 70's when Oil embargo caused inflation to jump to double-digit) are changing the way inflation used to work. It's no more just linked to unemployment or commodity prices. And it's good for world population as long as low inflation does not turn into deflation.

That's why I call today's economy in America as Goldilocks economy! Now all that change if President Trump really follows thru its threat of putting tariffs on most of the goods coming from China. It's good negotiating trick but can risk de-railing the confidence and markets! And its that time of year when the saying on Wall Street "Sell in May and Go Away" could have relevance!

/Shyam

2019: Culmination of Avengers, Thrones, Starwars and Markets?

It's Avengers Mania across the board with movie breaking all records in multiple countries (even in non-English speaking countries like India and China) and already collected over $1.2 Billion in 3 days! That's a juggernaut which would rule the box-office for next few weeks and would easily cross $2 Billion in matter of days. Looking at similar "culmination" events, 2019 turning out to be year of culminations. Let's look at these:

• Starwars: Started in 1983 and after 8 movies, final episode is coming Dec 2019. So this saga is wrapping up after 36 years of fan-mania. It would be interesting to see if it will break "End Game" records.
• Avengers: It started with first Ironman Movie in May 2008. After 21 movies over 11 years "Avengers: End Game" brings all stories together. While this may be called as "End Game", I am sure Disney/Marvel will keep on churning new superhero movies. Now it's just matter of time, if there is Marvel and DC superheroes come together to save the galaxies at some time in future. Given expanding world of Disney, I won't be surprised if it happens over next few years
• Game of Thrones: This expansive and most popular cable series started in 2011 and after budget of nearly $10 million per episode (means more than $500 million cumulatively), it will wrap up with movie style (1 hour and 20 min) runtime in May. Even in today's world of streaming and countless choices, GOT has created buzz similar to last season/episodes of MASH, Seinfeld etc. What's next? AT&T (which owns HBO) must be planning multiple spin-offs of GOT
• Markets: Markets are on its 2nd longest bull-run and in Q2 it will become longest bull-run on record. While one can never predict when this bull-run will be over, it's reasonable to assume that as election cycle gathers momentum, we would see markets taking a pause in summer and potentially make one last run towards all-time highs towards end of 2019 before having a shallow bear phase in early 2020. Till then enjoy the ride since markets will reach all time highs with S&P potentially breaking 3000 in next few days.

There is something about the timing since coincidentally all of these started in Spring (Starwars: May 1983, Avengers: May 2008, GOT: Apr 2011 and Markets: Mar/Apr 2009). No wonder there is a term called "Spring Fever"

It's time to go and enjoy Avengers Movie!

/Shyam

It's time to DISCO

From the title, one would wonder did I change narrative of my blog and started blogging on dance style or what? Well - yes and no. I like movies, music and of course nice choreographed songs (even though personally I am absolutely not good at dancing). DISCO was one of the major trend in early 80s and gave world some of the exciting dance moves! One of the bollywood producer Karan Johar also seem to like DISCO style and tries to mix one of the song with DISCO style in his movies. Check out It's time to DISCO song in Kal Ho Na Ho.
But this blog is about investing. So let me explain what DISCO means.
DISCO is new acronym coined by me to cover stocks which are relatively old tech/media companies but doing exceedingly well especially in 2019 and would be relevant in 21st century. All of these companies with exception of one are more than 30 years old and most importantly they are also dividend paying companies with yield ranging from 1.5% to 5%. These companies (with exception of one) were written off multiple times during their lifetime and each of them reinvented. So here are these companies in DISCO!

DISNEY (DIS)
Intel (INTC)
Salesforce (CRM)
Cisco (CSCO)
Oracle (ORCL)

Let's talk about each company briefly since none of these companies need big introduction.

Disney: YTD 21%
This is the oldest company of DISCO. With it's streaming announcement, it has definitely pivoted itself to be relevant in 21st century. No company can match its creative assets with universe of Disney, ABC, ESPN, MARVEL, PIXAR, STARWARS, FOX assets (Fox studios, Hotstar, Star India), Theme parks and many more. With streaming, it will bring all of these to homes at reasonable price. Now it can hold its own against Netflix onslaught and be relevant in 21st century.

Intel: YTD 25%
Intel has transformed itself multiple times after written off by every new trend - be it mobile, alternate CPU architecture, AI, ML and so on. By making smart decisions (like getting out of 5G race or focusing on data center), it has kept with pace of innovations in its core space. It had made some smart acquisitions along the way (even though it should have acquired Nvidia few years back). Intel is here to stay no matter where Semi world goes!

Salesforce: YTD 13%
This is the youngest company in DISCO and only exception of more than 30 year old and dividend paying rules. But this company deserves to be part of DISCO. It invented how software should be delivered 20 years back and since then it has been leader. It's the leader of cloud SAAS players and even big software companies like Microsoft, Adobe and even its arch-rival Oracle is following the path.

Cisco: YTD 30%
Since I work at Cisco, I cannot write much about company to avoid conflict of interest. But as publicly available information has shown, Cisco started the journey of focusing on core and transforming itself into world of software and subscription. Credit goes to our CEO Chuck Robbins for this transformation. In terms of YTD returns, this is the leader of DISCO with 30% YTD returns

Oracle: YTD 21%
Oracle is 2nd company in software to make into DISCO. But as Marc Andreessen written in his blog "Why Software Is Eating the World" in 2011, the trend is increasing and hence it's worth to have 2 software companies in DISCO. While Salesforce is nipping on Oracle's business, almost all biggest companies run on Oracle's core product of databases. Oracle is investing heavily into moving its offerings into cloud and made decent progress. The story would play out similar to Microsoft albeit slowly. 

As one can see, DISCO stocks are having a good time in 2019 and most likely continue the "dance" even though stock market music stops in 2020. Most importantly this group would be relevant in  21st century.

Happy Easter Sunday!
/Shyam

The Greatest Show on The Planet!

You must be wondering what would be "The Greatest Show" on the planet we call The Earth! Many events would qualify for this honor. For college basketball fans, it would be March Madness which wrapped up last week (Virginia won). Then there was the biggest comeback in any sports with Tiger Woods winning Masters at Augusta. This would be his first major win since Jun 2008 - even before longest running bull market started. At age 43 and after a gap of 11 years, this can definitely be "biggest comeback" but does not qualify as greatest show. Last time he won any major was when Game of Thrones was only books! Now for "Game of Thrones" fans, first episode of final season which aired on Sunday Apr 14 could be called big show with highest TV ratings. But hey, those many people watch an average Indian soap-opera or an IPL match. Now 2019 IPL (Wildly popular 20 over cricket tournament between 8 teams in India) comes close to "Greatest Show" which happens every year during Indian summer. Cumulatively 100-200 Million people must be watching IPL matches.
But to top it all, Indian Parliament Elections is truly the " The Greatest Show" on earth. It happens every 5 years (most of the times due to stable governments - in 90's record was few months). This year it started on Apr 11 and would finish on May 23 when counting will start. The elections will happen over 7 phases and nearly 900 million would be eligible to vote, And Indians do vote with average participation of over 60-65%. That means 550-650 Million people will cast their vote (twice the population of US). So it's not only watching any TV show or sports match but actively participating in electing the Government which would decide the fate of 1/6th of world population and run 5th largest economy. Now if that's not The Greatest Show, tell me what would be?
2019 elections are going to be key to how India would realize her full potential. PM Modi had shown the path with bold and decisive policies what can be done with strong and corrupt free government. But 5 years is a short time to make significant change. China took 30 years to become 2nd biggest economy because its leaders do not need to get elected every 5 years. Despite almost continuing elections (local, state, federal), India had done an amazing job in growing economy at 6-8% in last few years. India needs another strong government led by PM Modi to take her to next level ands realize her full potential. That's why these elections are so crucial for India and for world!
The Greatest Show on The Planet is On! Stay tuned for May 23 for the Finale!
/Shyam

March Madness!

After brief hiatus due to around the world tour (first time in southern hemisphere), it's good to be back home. And of course it's March Madness season. It's futile to even come up with perfect bracket since even most advanced AI with all the data crunching in the world will not be able to predict perfect bracket even in 22nd century. Looks like after 40 games, there are two perfect brackets remaining (out of tens of millions) as of this writing. So let's pick only top 4 teams. Here are my picks:

• Virginia Cavaliers
• Kentucky Wildcats
• Duke Blue Devils
• Gonzaga Bulldogs

Any one of these could win the championship. While college basketball march madness is in full swing, there are other events in the world which match the "madness" aspects! Let's look at them

Brexit "May"hem:

This is truly a "Shaskperean" class drama unfolding in Britain. At this time, no one knows what British people and politicians want. Accordingly to rules, Mar 29 was supposed to be the key date when Brexit would have been effective with or without deal. After multiple failed votes in parliament, May keeps on going to EU to get additional concessions or extended timelines. Now she got two dates - one in Apr and one in May. So depending on how British MPs vote, world will know what happens to Brexit. Given the size of British economy and in general EU's state of economy, maybe world does not care what happens. May should just have another referendum and let people decide once for all. I guess British would decide to stay in EU if there is another referendum (provided there are no "external" forces influencing the elections)

Muller Report:

After almost 2 years, Muller has wrapped up his special investigations of Russian meddling into US presidential elections and submitted his report to AG. Muller has done an outstanding job in running the investigations professionally and without any public statements. So while both parties will try to politicize the findings, people would trust what's in the report and make their own conclusions. So what happens next? AG would have to make the report public at some point of time and then congress and people have to decide in upcoming elections what to do with President Trump and congress.

Fed Interest Rates and Markets:

Just few months back, everyone was predicting 3 or more interest rate hikes by US Federal Reserve Bank. And based on last week's Fed meeting and direction of 10 year yields, interest rate cuts may be on horizon. What happened? One word - Recession! Last week, yield inversion happened - means interest rates on 10 year treasuries is less than 3-month treasuries. And since 1975, every time it happened, recession followed up in next 18 months. So I won't be surprised if we have recession (even shallow one) in 2020. Given markets normally react to potential direction of economy 6-12 months in advance, market swoon last week was expected. Now Fed can always come to rescue by actually reducing interest rates by end of 2019 and delay the recession by few quarters. 

US-China Trade Talks:

These talks are entering into 6 or 7th innings with back-n-forth talks in Washington and Beijing. Most likely we will see Trump and Xi meeting and wrapping up the deal in late Apr or May. 

So lots of "madness" in the world. Outside of this madness: India elections are announced, IPL cricket season has started, US college admission results started coming in. More on these topics later!

/Shyam

Bull in China (Shop) Stocks?

Past few years on Oscar Sunday, I have wrote blogs titled "and Oscar goes to..." and most of the times my prediction rate was above 50-75%. This year Oscar event seems to be creating more and more controversies and overall event seems to get boring (as compared to other choices available to spend Sunday evening). Nevertheless, I love movies so here are my predictions for this year's Oscar winners:

1. Best Picture - Roma (this would be historic recognition to streaming world)
2. Best Director - Alfonso Cuarón, Roma
3. Actor in leading role - Rami Malek, Bohemian Rhapsody
4. Actress in leading role - Glenn Close, The Wife
5. Actor in supporting role - Mahershala Ali, Green Book
6. Actress in supporting role - Regina King, If Beale Street Could Talk

Unfortunately I had not seen any of above mentioned movies (other than Roma) till now. No wonder there is less excitement about Oscars this year. The new category Academy tried to create (Popular movie) and then cancelled would have definitely gone to Black Panther. Let's see how my predictions do.

Next week is also interesting on international political front with Trump and Kim meeting in Hanoi and US-China trade talks deadline of March 1. President Trump will make sure that there is enough optics to show progress and will claim (which to some extent is true) that he is the only President who could make this happen. That brings me to the title of my blog. 

Definition of bull in a china shop: a person who breaks things or who often makes mistakes or causes damage in situations that require careful thinking or behavior.

You know who can match to this definition! But I am looking at this from different angle.

Let's look at "Bull in China Stocks"

Chinese markets are in downdraft since it reached all time highs in 2015 when Shanghai Stock Exchange index reached 5131 on Jun 1, 2015. Now it stands at just over 2800. Almost same level as S&P500 index. So in next 12 months, which index is going to do better? While S&P will cross 3000 this year for another 6-7% growth, Shanghai index will do even better. Once trade agreement is reached, Chinese stocks will continue its momentum since their valuations are still relatively low (avg PE of 11 compared to 15-16 for S&P). In next 12 months, Chinese stocks will return at least few percentage points more than S&P. So it should be almost no-brainer to have some exposure thru ETFs like FXI, KWEB or even stocks like BZUN, NIO, BABA, IQ (only after doing your own due diligence).

Enjoy the Oscars!

/Shyam

Apple's next move? Entertainment, Autos, Games or Healthcare!

Earnings season is almost wrapping up with most of the companies announcing results and forecast better than feared in Dec. With Fed on hold, avoidance of shutdown, incremental but positive progress on trade talks and economy's "goldilocks" state, markets are responding well with 11% gain YTD (largest since 1991 and 1987). IMO, biggest catalyst of trade deal with China is yet to come in Spring. So markets has some more upside left before summer. 

Apple has amassed nearly $250 Billion cash and everyone has opinions on what they should do with the cash. With its flagship product iPhone sales slowing down, its obvious that Apple needs next big market to move the needle. So let's look at 4 new markets and potential companies Apple can acquire to get started!

Entertainment: 

The entertainment industry is changing to streaming world started by Netflix and boosted by Amazon Prime. Netflix original movie "Roma" winning Oscar next Sunday will make it official! Even behemoth like Disney had to respond by planning to introduce Disney+ by end of year. Apple has been toying the idea for last few years but has been very slow to respond. Their supposedly new service to be introduced in Apr will be too late and too pricey. So if Apple is serious about being major player in this, it should consider buying Netflix or Disney. Of course this will cost $200 Billion and would be biggest acquisition of all time and I don't think it will happen (due to Apple's DNA).

Autos:

Auto industry is going thru similar transformation with electric vehicles and self-driving cars. Apple's rumored "Apple Car" is supposed to come in 2020 or later. Tesla, NIO and even traditional car companies like GM have at least 5-10 year's of head start with battery technology and self-driving AI driven software. Google's Waymo is also way ahead. Apple is playing catchup. Apple could buy Tesla (for say $80 Billion) and instantly become leader in both EV and self-driving cars (and also solve Tesla's cash problem). Auto industry is over trillion $ and even 5% market share would move the needle for Apple

Games:

Game industry is tricky since gamers are very finicky. However as Netflix's Reed Hastings said, entertainment/streaming industry has to pay attention to this since person can do only one at a time - play games or watch movies/shows. And Epic Games's "Fortnite" has proven what a compelling, multi-player game can do. Fortnite has over 80 million active monthly users with over Billion hour of playtime over multiple months. It had effectively garnered so much playtime and attention that traditional game companies like EA and Activision had to announce warnings in their quarterly results. Apple could become instant leader by buying Epic Games (for say $25 Billion) if it is willing to sell or go traditional by buying Electronic Arts (will cost about $50 Billion) and leverage its gaming properties and expertise to create something like Fortnite.

Health care:

With Apple Watch and partnerships with various companies, Apple has been testing the waters of health care. Health care industry has been bigger than all three mentioned combined and one of the most complex industry. Due to regulations, it is also slowest industry to adopt changes and hence almost opposite of tech industry. By applying tech industry's speed of innovation and Apple's stance on privacy (which is very much needed), Apple could make a big difference in not only moving the needle for itself but also change the cost of healthcare for US economy. There is no obvious company Apple could buy to jumpstart (that's why Amazon, JP Morgan and Berkshire started new company), it could consider parts of United Healthcare, CVS or Epic Healthcare!

It's hard choice for Apple. It can do all of these organically over next 10 years or make a big splash by changing the way it enters new industries. After all cash in bank has no value when it comes to growing the company! And if its hard choice, Apple could afford to enter multiple industries with its $250 Billion war-chest! 

And it needs to move fast before new iPhone launch event becomes as boring as Oscars!

/Shyam

After Worst December comes Best January: What's next? Year of the Pig!

After stock markets had their Worst December since 1931 and Best January since 1988, one would wonder - what's next? As investors are always in dilemma, answering this question is important. Also while I don't believe in relation of market returns to Super Bowl winner or Chinese year, it's good to look at some of those predictors just for fun!
The Super Bowl week of earnings just got over and as expected most of the companies announced decent earnings and forecasts (Amazon was major exception). That produced sixth week of market gains. Given Nvidia's dis-appointing pre-announcement and Intel's not-so-inspiring earnings, AMD's earnings were outstanding and it got rewarded for that. Finally the hypothesis I laid out in my blog about "AMD new A in FANG" 5 months back is playing out. If AMD continues its market share gains in datacenter CPU/GPU segment and holds its ground in server/consumer/embedded section with 7nm technology advantage, 2H2019 could be very good for AMD. It should continue to reflect in AMD's share price reaching near $30-$32 during the year for 20-25% gain. Despite so much negative publicity, Facebook business seems to be on roll. All Facebook properties rocked in terms of  their reach and effectiveness of advertising. FB stock could go above $200 during year for a gain of close to 20%.
Now let's look at Year of the Pig. This is 12th year of 12-year cycle of Chinese Zodiac calendar. Happy New Year! Looking at some historical co-relation of year of the Pig and stock markets, S&P returns are above average during Year of the Pig. No wonder Pig is associated with wealth in Chinese culture. Year of the Dog (and 2018) was very bad for Chinese stocks due to various headwinds - mainly slower GDP growth, credit cycle and most importantly trade war with US. In the year of the Pig, these headwinds could become tailwinds starting with "Trade Truce" with President Trump. Watch out for three ETF related to Chinese market (FXI, MCHI, KWEB). Each of them are up by 9-15% and could go up by 20% during 2019 if tailwinds pan out.
In non-football terms, tomorrow's Super Bowl can be called:

• Oldies vs Newbies
• Experience vs Youth
• Snow vs Beach
• East Coast vs West Coast
• Quarterback: Wolverine (UMich) vs Bear (Cal)
• Generation X vs Millennial

It's Super Bowl between two generations. Will it be "End or continuation of Patriots and Tom Brady Legacy" which started in 2002 with matchup between same two teams!

As side note, Rams winning Super Bowl is better for stock markets (based on Super Bowl predictor)

Have a great Super Bowl Sunday!

/Shyam

Super Bowl of Earnings, Fed and Employment!

Super Bowl of NFL is just a week away when Patriots would be appearing 9th time since 2001 and Rams will be playing their first since moving to City of Angels! Who would win? It's match up between experience vs youth. Patriots' quarterback Tom Brady (age 41) and head coach Bill Belichick (age 66) have been playing/coaching football before their respective counterparts Rams' quarterback Jared Goff (Age 24 - Cal graduate. Go Bears!) and head coach Sean McVay (Age 33) were even born! In a way it's representation of today's society including corporate world. When it comes to which team I support - I am split. I stayed in New England for one year so would like to see Patriots win. But then Rams is now California team with quarterback from UC Berkeley (my alma mater). So I am just going to enjoy the game and let the best team win! But before we get to Super Bowl Sunday, let's look at this week's Super Bowl of economic events starting with earnings.
This week can easily be called as Super Bowl of earnings when 114 S&P companies are reporting representing maybe close to $4-5 Trillion market cap. The companies span across almost all industries but most important earnings to watch are:

• Monday: Caterpillar 
• Tuesday: Apple, AMD, Amgen, Biogen, Pfizer, 3M, Verizon
• Wednesday: Alibaba, Microsoft, Facebook, AT&T, Tesla, Visa
• Thursday: Amazon, GE, UPS, Mastercard
• Friday: Exxon Mobil, Chevron, Merck

These companies are who's who and can really provide where world economy is heading so watch out for their guidance. In addition to these earning reports, there are two critical events:

• Wednesday: FOMC meeting conclusion and guidance on direction of interest rates. 
• Friday: Employment report. Due to shutdown (glad it's over for now), the numbers may be little skewed but should show unemployment steady at 3.8%

With so many events, what should one do when it comes to investing in markets? If you take long view, markets are still about 10% below all time high (even after rising nearly 13% since its recent low on Christmas eve). As I wrote in "Third Year is The Best", things will be ok in 2019 and one can tiptoe in the markets depending on his risk/reward profile.

Enjoy the Super Bowl of earnings and actual Super Bowl!

/Shyam

The Antidote for Four Horsemen of the Markets!

About 15 months back, I wrote bog Four Horsemen of the Markets about what could end the good times markets were having (back in 2017). Other than taxes, all other three (Fed, Earnings and Trump) played a role in market turmoil exactly one year later producing worst December since 1931. Looks like I was year earlier! Now that scenario has played out, let's look at antidotes for Four Horsemen of markets (for references to Four Horsemen, read on wikipedia and my blog)
Markets have recovered half of their losses after reaching low on Christmas Eve and playing the theme of Markets take steps going up and take elevator coming down. Let's look at the antidotes which would keep markets chugging along potentially reaching all time highs in 2019 again!

FED and Interest Rates: 
Fed did act as horseman and played its role for Q4 turmoil by declaring its intentions of raising interest rates almost like autopilot. No one including President Trump liked it and Fed also realized that it may have gone beyond what it intended to convey. New year brought some dovish tone from Fed including chairman Powell. Now instead of saying "autopilot", they are saying policy of interest rates would depend on various economic factors. So now markets are feeling that Fed is on its side and interest rate hikes are either done or max 1-2 hikes are in front of us!

Earnings:
While most people believe that we are reaching peak of longest bull market and peak earnings, no one expected company like Apple giving major negative earning warnings. While some of the Apple problems are specific to company (high-priced iPhones, incremental innovation in iPhone and no new must have products/services in sight), some of the signs were also indications of slowing economy in China and results of trade war. After Apple's bombshell announcement, surprisingly earnings season has been relatively good. Especially banks have been producing record earnings and energy companies are also on mend. There were also major M&A in biotech means big bio/pharma companies seem to be confident about their earnings. That leaves Tech outside Apple. In next two  weeks, we will hear from Microsoft, Alphabet, Facebook and most importantly Amazon. Most of them should announce reasonably good earnings and forecasts.

Trade War or Truce:
NAFTA became USMCA without much fanfare. Now most important is US-China trade discussions and deal it may produce. This has potential to change the world trade landscape for next decade and hence markets are so fixated on these negotiations and react wildly (up or down) depending on any news coming out of these discussions. Initial rounds seem to be going well. Another round is coming up end of month. Hope both sides agree to amicable deal and announce by middle to end of Feb to avoid "Truce" becoming "War". Given the sensitivity of this deal, both sides are extending hand. Even though US has stronger hand, US presidential election cycle would motivate President Trump to do the deal and declare victory.

GDP:
China is slowing closer to 6%. India is entering into election cycle and GDP would be closer to 7%. US will be around 2% (even with shutdown entering into 5th week. Rgarding shutdown, its whole another topic to write about) and EU (due to Brexit mess) would be around 1-2%. So overall world GDP growth is slowing down maybe by 50-100 basis points compared to 2018. Slowing down is better than entering into recession as feared just few weeks back. So as long as first three antidotes work, world GDP would still be growing in 2019 which should be good for employment and markets.

So if you believe these antidotes would work and looking for investments (many people ask me for specific stock tips), check out my new year blog "BEST of 2019". Many of those recommendations are up by double-digit but there is still some upside left!
/Shyam

Third year is Best!

You may have heard the terms "Third time is the Charm" or "Third time's lucky". All of these terms have some meaning. For example, "Third time's lucky" has its origin in 19th century hanging in which one would be freed up from hanging if he survives third attempt. So how does this relates to "Third Year is Best"? 2019 is third year of Presidential term and based on historic data,  this is the best year for markets. Since 1950, markets are up 100% of time in third year. On an average  they are up by close to 15%. Check out WSJ article on this! General theory is that first two years Presidents spend on fulfilling difficult campaign promises as done by Obama with Health-care reform law and Trump did with tax reforms. In third year, President gets into campaign mode in first term and "Leaving Legacy" mode in 2nd term and start focusing on economy. The major policy changes in first two years start playing out in third year. In addition, based on recent history, third year also brings post mid-term political changes creating "divided government". That means President has to work with other party to run the government and hence consensus building takes center-stage. It won't feel that way given government shutdown but at least now both party leaders are talking and most likely shutdown will be over early next week. So would "third year is best" play out for 2019? Let's look at some of the factors:

• Markets have reset themselves from all-time highs of summer 2018 and are at reasonable valuation. The froth has almost gone!
• Employment is still close to all time low and labor markets are healthy
• With inflation in check, Fed can afford to wait on raising interest rates
• Economy seems to be at equilibrium with GDP growth of around 2-2.5% and inflation at 2%
• Trade discussions with China will get into high-gear in Jan and given risks to both US and Chinese economies if trade talks fail, both parties would be willing to extend hands for handshake after Chinese new year in Feb.
• Brexit deadline would be extended to give more time for reasonable deal (or no Brexit at all)
• While Apple's earning warning was bad (even though it was expected given warnings from Apple suppliers), it won't be like 2000 or 2008 when there were flood of earning warnings. We will know in next couple of weeks.

So all factors seem to indicate that "Third year is BEST" could live to its historic expectations!

/Shyam

"BEST" of New Year 2019!

Happy New Year to all. Finally 2018 is over and hopefully new year of 2019 would bring some much needed calm and sanity to the world of politics, economy and markets! 2018 ended as worst year for investing since great recession of 2008. While I have written about 2018 to be similar to 1998, it turned out to be worse than expected. Looking back at my recommendations at start of year, it turned out to be one of the worst year of recommendations. Let's take a look at it briefly.

• Overall returns were negative high double digit percentages (compared to negative 6.2% for S&P). 
• Only 6 out of 18 recommendations did better than market
• Best performers were NTNX, RGNX and QURE
• Worst performers were SN, NLNK and GE. The last one (GE) was real surprise. I never expected GE to be down by 57% in 2018.

So overall it was quite dismal performance. It would have been better to just invest in S&P instead. But that was last year. The Q4 market turmoil has left many stocks at "discounts" and I cannot resist the temptation of coming up with my 2019 list of 20 recommendations. In the world of acronyms, let's call 2019 theme of recommendations as "BEST" - Biotech, Energy, Streaming/Social/Semi and Technology! And here are the recommendations:

• Biotech: NKTR ($33), VKTX ($7.50), CRSP ($28), CELG ($64), XBI ($71)
• Energy: RIG ($7), OAS ($5.5), ECA ($5.7), XLE ($57)
• Social/Streaming/Semi: FB ($130), NFLX ($260), DIS ($109), MU ($31), AMD ($18), ROKU($30)
• Technology: AAPL ($155), MSFT ($100), ZUO ($18), WDC ($36), AMAT ($30)

Let's see how these BEST recommendations do in 2019. It will all depend on how markets do and that depends on following factors:

• Direction of US interest rates 
• US/China Trade 
• GDP growth of world economy
• Regaining of Trust by tech companies (especially FANG)
• Establishing confidence in banking/financial institutions (that it's not 2008/2009)
• Sanity to world political landscape

If 2018 indeed mimics like 1998 or even 2008, there is silver lining since both 1999 and 2009 had 20% plus returns! Here are my market predictions:

• 1-2 more Interest rate hikes by FED. 
• 10 year treasury would hover around 2.75 to 3.25
• US GDP growth: 2 to 2.5%
• US unemployment rate: 3.5 to 4.5%
• S&P by end of 2018: 2750 to 2850

Happy New Year!

/Shyam

The "Grinch" who stole Santa Claus Rally!

After writing my last blog on All Clear for Santa Claus Rally?, I never thought that my next blog would be on "Grinch who stole Santa Claus rally". But that's exactly where markets are at. It's just over 2 weeks and December which is normally a good month for markets is turning out to be worst December since great depression - yes that happened almost 85 years back! So how did we landed here? Well - lots of reasons and any or all of them are playing "Grinch" stealing what was supposedly Santa Claus rally after treacherous Oct and Nov. Let's look at these.

• Fed got itself into a bind by pre-signalling rate hike in Dec. With markets at delicate stage and inflation under control, ideally they should and would have liked to skip interest rate hike in this week's meeting. However President Trump's public statements against Fed would make Fed's job difficult in skipping interest rate hike. So if they increase, it's problem for markets (and possibly economy). If they don't increase, it would seem like they are coming under President Trump's pressure and that's not good for markets. So Fed got itself into hard and rock place! Hope Chairman Powell can navigate thru this on Wed.
• Government Shutdown: Looking at interactions between democratic leadership and President Trump in front of cameras was incredibly immature for all folks involved (including Pence who did not say a word). Now if they don't come to a deal, we are looking at Government shutdown right before holidays. 
• US/China trade war: Both President Trump and President Xi are sending signals but none of them are going to blink eye before holidays. That means we have to wait for another few weeks to know if both countries would reach agreement to stop getting into full-blown trade war
• Brexit and European Messiness: Brexit or not Brexit! No one knows what will happen and time is running out with deadline of Mar 29. France's yellow-vest movement, Merkel's problems in Germany making her lame-duck till her term is over and Italy's budget signals - all leading to erosion of confidence in EU economic growth.
• Slide in oil prices: Oil price is indicator of world economic growth. With oil prices sliding 52 week low means GDP growth would be lower in 2019
• FANG getting deFANGED: The curse of trillion $ valuation caught up with Apple and Amazon  and both are down significantly. Collectively FANGs lost close to trillion $ valuation in last 3 months. Same is happening in Semi and other tech stocks.

Many factors are playing "Grinch" stealing the Santa Claus rally and there is no immediate catalyst to turn around the sentiment. Only silver lining could be when optimists like me give up on markets going up mean markets may be close to bottom!

Happy Holidays!

/Shyam

All Clear for Santa Claus Rally?

Three most important men in terms of impact on market (President Trump, President Xi and Fed Chairman Powell) played nice to each other and markets. Starting with Powell's speech that interest rates being closer to neutral rate means pause after expected 25 basis point increase in December. Over weekend during G20 meeting, both Trump and Xi agreed to pause raising tariffs on Jan 1 and keep talking to reach "biggest" trade deal between US and China in next 90 days. With markets reaching low 2600 couple of times in Oct and Nov and rates and tariffs worries subsided should bode well for Santa Claus rally going into new year. Would markets reach all-time highs? It depends. If signs of substantial progress is made on trade talks between US and China, interest rates are not increased and economy still shows 2.5 to 3% growth without inflation, we could see markets reaching all time highs in Q1 of 2019. Of course FAANGs and Semis need to rejoin the party. That can happen if Q4 results continue to show momentum in top and bottom lines. At least cloud software companies like Salesforce, Splunk, Workday are keeping up the momentum. Semis (MU, AMD, Broadcom etc) and Energy (with stability in oil price) need to demonstrate that bottom is in. Healthcare seems to be holding up well. With biggest Biotech IPO (Moderna) around the corner should be good for biotech stocks also. 2019 would be a big year for tech IPOs with Uber, AirBNB, Lyft, Palantir and so on. Weekend was interesting with college football championship matchups. In SEC championship, Alabama showed why it is #1 team in college football by rallying from behind (14-28) to win by 35-28 that too with help of backup quarterback. Hats off to Jalen Hurts! Now looking forward to who takes the #4 slot for playoffs (Oklahoma or Ohio State).
President George H.W Bush died on Nov 30 at age 94. He was one of the best President who did not get his due recognition despite ending cold war and navigating thru economy at difficult times. He was true patriot and we will miss him.

/Shyam

Random Thoughts on Trends!

Hope all of you had great Thanksgiving weekend. Visiting one of the Bay Area Mall on Black Friday gave a sense that economy is doing well since malls were packed with people doing bargain hunting. We are almost at end of 2018 and given recent churn in markets, I keep on going back to the year which was very much like 2018. The year of 1998! I could almost cut-n-paste my previous blog on this topic 1998, 2008 and now 2018: History Repeats!
Let's look at current state of various markets:

• "Crude" reality is setting in oil markets with supply increasing due to waivers granted by US for Iran oil imports, OPEC pumping like there is no tomorrow and US shale producers going with mantra of "drill baby drill". At same time, demand is slowing down due to Chinese economy slowing and US GDP growth coming down from 3+ to natural rate of 2%. All of this resulting in crude crashing from $75 to $50 and more pain to come.
• Cryptos are crashing - This was expected since various governments closed the doors of channeling unaccounted money thru cryptos and bubble bursting. 
• Interest rates going up - US Fed is the king of interest rates. Right now it is on path to increase the rates by few times. But given market conditions, it would be wise for Powell to take a pause after increasing it one last time in December
• Trade squabbles - Everyone is looking for President Trump and Xi's meeting on Nov 30 on trade between two biggest economies. While there have been some positive comments made from both sides leading to this summit, markets are expecting some concrete steps to avoid tariffs going to 25% in Jan and long-term resolution to bring the trade to normalcy. This would be biggest market mover in either direction. Given that finally US markets have cratered, President Trump would be more amenable to some kind of deal.
• Landing of high-flying tech stocks - FAANG have collectively lost $1.1 Trillion in market cap. That's bound to have some impact on Bay Area and Seattle housing prices (which may be good in long term to make these areas little bit more affordable). However we had seen this movie before in 2015, 2011, 2008 and of course in 1998 during dot-com era. Stock valuations of tech companies are about growth driven by new technology trends. Mobile, cloud and social were major trends which powered last decade, There are many new trends emerging - AI, ML, Auto-tech, 5G, AR/VR, healthcare tech which would power next decade. However the pace of change will depend on how quickly these trends become mainstream. Cell phone was novelty in 1990s. It took nearly a decade for it to become necessity after smartphone changed the game. Same is going to be repeated in each of these trends, Tesla is novelty right now. Decade or two from now, autonomous cars would be like smartphones to mobile phones!

So if you are in for long-haul, stay put in markets and do average cost investing (invest some amount every month no matter how markets are doing). And stop worrying about daily ups and downs of markets and enjoy your holidays!

/Shyam

Divided Congress = United America!

As predicted, US elections produced split congress with Democrats taking control of House of Representatives and Republicans keeping Senate (with increased margin). Pundits will analyze these results and comment on how nation is divided. I beg to defer! In my opinion,
Divided congress = United America!
People want their politicians (I refrain calling them leaders yet) to work together and implement policies and pass bills which both parties agree on. If divided congress produce complete gridlock, that's ok since at least nothing will happen. It also means no bad policies will be implemented. Time and again this has proven very effective. Some of the best years of 60s, 80s, 90s and recent Obama years had divided congress. Markets seem to agree that divided congress is good and hence all indices are up significantly.
Now that Democrats control house, let's look at 4 "i"s of Democrats:
Infrastructure, Immigration, Investigation and Impeachment.
If Nancy Pelosi and Democrats learn from past history, it would be best for them to focus on first two signature policies - Infrastructure and Immigration and work with President Trump in 2019 before politics of 2020 elections take over and nation gets fixated over last two - Investigation and Impeachment. If President Trump wants to leave legacy in his first term, it would be best for him also to work with Democrats on Infrastructure and Immigration. After all last major immigration bill happened under Republican president (Reagan) in 1986 and people remember him for that. President Trump already has lower taxes, strong economy, lowest unemployment in decades. He can add feather to his cap by working on Infrastructure and Immigration and leave a legacy behind!
Both Pelosi and Trump need to keep their "i" ego aside and focus on "we" to Make America Great Again!
Happy Diwali!
/Shyam

November to Remember: Diwali, Elections and Markets!

It's that time of year when "scary" October gets over with Halloween and November starts with holiday spirit. This time Diwali also happens to be in November (happens once in approx 3 years). So first of all, Happy Diwali to all my readers! This is the biggest and most joyous festival for "festival crazy" Indians. The festival itself goes on for 5 days but if you combine with Vijadashmi, Navratri and multiple weekends of Dandiya, it feels like we are in this for months. It's also called Festival of Lights! With lights, fireworks (where permitted), sweets, parties with family and friends wearing colorful outfits, it's fun! This time I am also looking forward to seeing Aamir/Amithabh's most awaited film "Thugs of Hindostan" which is releasing day after Diwali. it's MUST WATCH film. Go and see in theaters.
November also brings election season every two years These are mid-term elections but due to unique style and substance of our President Trump, it feels like Presidential election where people are going to vote for President Trump or against him. These mid-terms would be one of the most consequential elections in deciding future direction of country. As I have written in past couple of blogs, I am predicting split congress with house going to Democrats and senate staying with Republicans (I have few lunch bets with friends). It would produce gridlock in Washington which is exactly what we need to stop some of the policies and bring back "Art of Politics (aka compromise)" for good of country.
While markets would love to have status-quo (means Republicans winning both house and senate), it will get used to split government and indeed rally after elections as it has happened majority of times. There is also some sector rotation happening in which money made in tech stocks (FANG) is going into less exciting sectors like utilities. With full employment and relatively stable inflation, Fed would continue to raise rates at least two more times before taking a pause.
What a mess company can get into due to lack of vision and leadership. Who would have thought that in all companies GE who is famously known for producing CEOs for other companies would be in such a mess and would need outsider CEO. General Electric (GE) stock is at 9 year low and reached single digit ($9). It reached low of $6.66 in March 2009. So would it go to that level or has it reached bottom? GE has become a binary investment decision (similar to Valeant - now Bausch Health 2 years back). Would it survive or go bankrupt? Given GE's storied history - it was the only stock to remain in DOW for last 125 years before it got kicked out this year - the company would survive after CEO Larry Culp does cleanup. Return on investment in GE stock should beat returns from S&P over next 2 years. But it would need courage to go thru volatility and uncertainty.
After Diwali, Thanksgiving is not too far! So enjoy your sweets and get ready for Thanksgiving!
/Shyam

"Fed" up?

The market turmoil continues and President Trump and everyone on street started talking about how Federal Reserve Bank (FED) is keeping its blinders on and intent on keeping up with its chosen path of increasing interest rates. Basically they are "Fed" up and wants FED to change its stance on interest rates. We had seen this movie before. Interest rates start going up, markets have tantrum hoping fed will chance its stance. Then monthly and quarterly economic indicators start coming and everything looks ok giving fed ammunition to keep up its course and then markets adjust back to normal. It's almost like markets have 10-year itch (there is 7-year itch term in relationships). It happened in 1987, 1998, 2008 and now 2018. While there would be some hit to confidence, recent market turmoil also helps take out the excesses and set a good foundation for further upside movement. Mid-term elections also add to the uncertainty even though most of the polls are predicting that congress will be split in which democrats taking house and GOP keeping senate. With such arrangement and recent economic background, President Trump is going to start talking about infrastructure bill in exchange for some concessions on immigration issue. Both are key policy topics for democrats so he will be able to make deals with Nancy Pelosi and Chuck Schumer.  The biggest issue to be resolved would be trade war with China. After elections, Trump and Chinese would start talking some conciliatory language giving impression that both sides want to resolve the issue and can avoid full blown trade-war. All of these would lead to markets coming to normalcy. So if you are long term investor, October had given good opportunity to cost-average your investments. So relax and enjoy Diwali and upcoming festivals!
/Shyam

October "NO" Surprise!

In politics "October Surprise" means any political event orchestrated (or apparently orchestrated) in the month before an election, in the hopes of affecting the outcome (from Wikipedia). In stock markets, October is known for sharp market corrections as seen during so many times(1929, 1987, 2008 and so on). So this October, its no surprise that we are having some gut-wrenching correction which exactly started on first day of October. Today and next couple of days would be critical in terms of momentum selling before it settles down and get ready for year-end rally. President Trump is calling fed "crazy" which almost feels like Turkey President directing its central bank what to do. (another similarity: both these presidents have their son-in-law in key government position). Last few weeks interesting political drama unfolded in which both parties tried to score some points with their constituencies by using Judge Kavanaugh's confirmation to Supreme Court. Mid-term elections seems to be heading for split government in which house will be controlled by democrats whereas GOP will keep Senate majority. And it may be good for markets. As they say "Gridlock = Goldilock" since no one party can do any major damage. In fact President Trump may be able to get its Infrastructure bill passed with house democrats and give another boost to already hot economy in which unemployment reached 49 year low.

As investor, what should one do? If you are invested in market, don't panic and stay invested. Exactly same sell-off happened in Feb and markets nicely recovered from that. It's going to be repeat of that. Markets would start gaining back as Oct nears end and by year end it will be high single digit return for 2018. If you are waiting to jump in market, timing could be tricky since finding bottom is always difficult. So I would recommend average costing over multiple weeks/months. That's all for mid-week update

/Shyam

"T"heatrics: Trade, Tech, Tesla and Trump!

What a week of theatrics by all the Ts mentioned. Let's look at each one of these!
Trade:  Trade and tariffs continue to dominate the news with skirmishes between US and Canada, potential battle with Japan and escalating trade war with China. On the strength of US economy, US seems to have upper hand which Trump and his trade representative wants to fully exploit and extract most from its trade partners. Mexico fell in line so will most likely Canada resulting into NAFTA 2.0 by end of year. EU has started taking about "no tariffs or reciprocal tariffs" on cars. Japanese are smart not to ruffle feathers with Trump administration. And then there is China! The trade talks started two weeks back but did not made any progress. Most likely tariffs on another $200B Chinese goods  will happen and then serious negotiations will start resulting into some kind of deal by end of year. Till then trade will continue to dominate the economic news
Tech: After reaching all time high in late Aug, Tech stocks are having bad start to month of Sept. Many stocks are down by 5-20%. Lots of factors at play here. The testimony of Facebook's Sheryl's Sandberg, Twitter's Jack Dorsey and Google's "empty chair" in front of senate committee was nothing short of theatrics.  Trump administration and Dept of Justice looking into practices of these companies to specific voices could become serious especially if they are not careful during upcoming mid-term elections. Semis are taking hit due to fear of reaching peak. One of my recommended stock Micron (MU $45) is down over 20% in last couple of weeks. So are many other stocks like TWTR, ZUO, FB and NFLX. All of these stocks offer significant buying opportunity if one can stomach the volatility since they can go down another 10-20% before going up by 20-40%. So invest carefully.
Tesla: The theatrics @Tesla are mostly due to Elon Musk. How many negative news can a company take in a week? Two executives leaving, short seller suing company and CEO for spreading false but material information,  CEO Elon Musk smoking pot during live podcast and stock deeply into bear territory. Elon Musk is extremely talented and visionary person of our generation almost to the same level as Steve Jobs. However Elon Musk needs to watch out on how his personal behavior is impacting Tesla shareholders. If board, CEO and company do not get its act right quickly and address upcoming cash-flow problems, there is real fear that Tesla may go thru "near death" experience as Apple did back in 90's.
Trump: Theatrics was how Trump won the presidency and that's how he has been running it for last 20 months. To add to the drama, we have Bob Woodward's book "Fear" coming out on 9/11, anonymous NY Times opinion wrote by Trump administration insider on how he/she is opposing Trump's policies from inside and Muller tightening his noose around Trump's men with various indictments and closing in on Trump and his family. All of these happening 2 months before very crucial mid-term elections which could add further drama to Washington theatrics.
/Shyam

AMD: New "A" in the FANG?

Happy Labor's Day to everyone. The month of Sept is here - one of the worst month in terms of market volatility and precursor to even dreaded Oct month. Sept 15 will be 10 year anniversary of famous Lehman Bankruptcy which started great recession of last decade. So it's time to pause, reflect and decide what's best strategy for remaining 4 months of 2018. 

The market voted unanimously who is winning the battle of trade wars between US and China with US markets reaching all time highs and Chinese markets entering into bear territory. This is one the reason China is entering into discussions again. The "Game of Chicken" between US and China may be entering into decisive phase in next few weeks. And that's good for markets.

Now let's look at best performing S&P stock of the year - AMD and what I mean by new "A" in FANG. As most of you must be knowing, FANG represents 6 companies (originally there were 4): Facebook, Apple/Amazon, Netflix/Nvidia and Google. The FANG stocks have done very well over last 5 years and hence  everyone love the term FANG. 

It's time to look at new members of FANG. So let's start with A:

Last year I wrote about "kid stocks (stocks trading below 18)" in which I recommended AMD at around $11 (other breakthrough stock was NTNX which went from $18 to $56). While AMD hovered around $11 for many months after that, 2018 brought a new level of excitement to AMD stock gaining 140% YTD reaching $25. One would be crazy to talk about investing in AMD when it's stock had already gone from $2 to $25 in less than 3 years (it was under $2 in early 2016). So let's look at which factors could continue the momentum.

• AMD is in two of the hottest sectors of semiconductor industry (albeit as distant 2nd)
• Data center CPU (Intel is leader with 99% market share)
• AI/ML focused GPU (Nvidia is undisputed leader)
• AMD has very low market share has potential to increase to double-digit
• Cloud titans (and almost every other vendor) are looking to diversify their CPU choices with x86 architecture. (ARM was considered as credible alternative but needs lots of refactoring of applications so most likely would remain a choice for mobile and IOT)
• Intel's recent mishap w.r.t. 7 nm with rollout pushing out to late 2019
• Increasing use of CPU/GPU across Smart-cars, IOT, Crypo-mining, AR/VR devices
• Better and consistent execution by AMD CEO and team
• Significant short interest in AMD stock
• Capex-lite strategy (AMD sold its fabs few years back to Global Foundry and uses TSMC for MFG)

All these factors are in favor of AMD as long as company keeps on executing on its technology roadmap, expand available markets and deliver consistent quarterly results. If you look at NVDA chart, 3 years back it was trading around $25 (exact same price as AMD today) and now it's 10 times that price. So for all these reasons, its time to add AMD to be part "A" of FANG!

/Shyam

History Repeats: Lies, Impeachment and Markets!

The double negative verdicts of Aug 21 may be considered as start of end of Trump Presidency. Only history would tell us significance of events happened on that day. Almost exactly 20 years back, political news were filled with special counsel Ken Starr and possible impeachment of President Clinton. Now it is Muller and Trump filling the political news. Special counsel Muller may file his report sometime later this year and democrats may gain control of house triggering possible impeachment process of President Trump. So what impact will it have on markets? Looking back, markets in 1998 fell nearly 20% leading to release of Starr's report. But once report was out and actual impeachment process started in Nov, markets regained all the losses and some more. It gained 28% by the time senate acquitted President Clinton in early 1999. While Clinton became lame-duck in last 2 years, markets continued to gain momentum during dot.com era. Looking at this history, what could happen this time?

Markets reached all time high this week. That means markets are already discounting possible outcome for Trump. Whatever happens to Trump, economy would remain strong for next 3-4 quarters. Markets may become nervous leading to release of Muller report but they will recover after the event. In some scenario, Trump getting wrapped up in impeachment drama may turn out to be positive when it comes to trade war. Republicans would start speaking openly against Trump. Economy would keep its momentum. Fed will become careful in raising the interest rates (due to political drama). So overall markets would be ok during potential impeachment drama similar to what happened in 1998/1999. But one must be careful. The way history is repeating for political drama, it can also repeat for market drama. We all know how dot.com bubble burst in 2000. So when it comes to 2020, watch out for  repeat of 2000 dot.com bust. And this time also most likely it would be due to Tech. The indication of this would be when Tech sector weight in S&P crosses 30-32% (currently it is at 26%. During dot.com bubble, it reached 34%). Till then, let the party continue!

Turkey Shoot

Thanksgiving is more than 3 months away and world is already worried about "Turkey" because of Turkey Shoot. A turkey shoot is a fight or contest where one side is so much stronger than the other that the weaker side has nochance of winning. That's exactly what is happening with President Trump taking the fight with Turkey's strongman Erdogan over release of American Pastor Andrew Branson. Turkish Lira dropped over 40% in 2018 (17% drop coming on Friday last week). This reminds the days of Asian currency crisis 20 years back. What started in Thailand in 1997 with its currency dropping 40% quickly spread to other countries like Indonesia, Malaysia and South Korea and caused turmoil in worldwide markets. As they say, history does repeat itself. 20 years later, world is in very similar phase. Would summer Turkey Shoot turn to be a full-blown crisis? Sept and Oct are upon us. These months are one of the worst months in terms of market turmoil. Mid-term elections in US would be unpredictable where Trump's party most likely will lose house (and maybe lucky to retain Senate). Trump is taking fight with new country every week with tariffs. Fed is raising rates supposedly on back of strong US economy. All of these could lead us into a situation where things could suddenly change leading to major crisis. So what could reverse the dark clouds on horizon? Turkish President Erdogan taming his ego and releasing Branson and Trump quickly reversing the tariffs bringing situation back to where it was few months back. Trump toning down his twitter diplomacy and ratcheting down tariffs threats. Other countries like China and Germany (and EU) reciprocating with meaningful discussions and actions giving Trump symbolic and public victory. US mid-term elections resulting in split results with democrats winning house and republicans retaining senate. Companies continuing the investments and publishing Q3 results similar to Q2. All of these could prevent another crisis similar to Asian currency crisis 20 years back. Till that happens, my recommendation is to be watchful and tread carefully if you are considering new investments!

/Shyam

And the Winner is....

As I mentioned in my previous blog in May about Race to Trillion, last week we did see first modern-day trillion $ market cap company. And the crown went to Apple as expected. As Q2 results started pouring in, it was clear that one of the two companies (Apple or Amazon) would claim the title. Both companies along with other two contenders Alphabet and Microsoft announced outstanding results and continued the momentum towards trillion. I won't be surprised if we see another trillion $ company in 2018 and most likely it would be Amazon. By end of 2019, expect all 4 companies to have crossed this milestone. Looks like Trillion is the new $500 Billion (of dotcom days).
Lots of interesting events have happened in month of July. France won its third Soccer world cup, escalation in tariffs "war of words", continued early-morning twitter meltdown of President Trump, Fed staying the course of raising interest rates. Despite all of these potential market moving news (except France's win), markets continued to establish the base and make steady upwards progress recovering from Feb lows. So what happens from now till end of year with mid-term elections in Nov and tariffs discussions (or lack of)? My prediction is that high-techs which got crushed (INTC, NFLX, FB, TWTR) would continue to trade sideways till close of Q3. The horsemen of trillion would continue to  make their march towards the milestone. The real breakout (or breakdown) will happen in Oct when Q3 results start coming in and mid-term elections prediction polls stabilize. Till then, I am cautiously optimistic!
/Shyam

New Frontier of Biotech: Genes!

Want to start with big disclaimer. Even though I have keen interest in science behind biotech and many successful investments (and some spectacular failures), I have no formal education in biotech or for that matter investing in biotech. On top of that, investing in biotech is extremely risky due to binary nature of outcomes. So if you are not a person with extreme risk tolerance, you can stop reading this week's blog (and save few minutes:-)

I got interested in biotech few years back due to science, potential to make outsize gains or losses (almost like bets) and just sheer progress happening in the field (personal situation was also one of the factor due to which I did lot of reading in this area). Last two years I started noticing emerging biotech companies in areas related to "genes". 

In general these companies can be divided in two broad categories:

Gene Therapy: 

1. "the transplantation of normal genes into cells in place of missing or defective ones in order to correct genetic disorders"

   Surprising lot of research is happening in this field for almost 50 years but successful treatments have started showing up just recently. Few companies to watch are:

• ONCE ($80) - genetic blinding conditions (approved drug which costs $800K for two eyes), hemophilia(A and B)
• RGNX ($52) - wet age-related macular degeneration, homozygous familial hypercholesterolemia, Mucopolysaccharidosis Type II
• VYGR ($20) - advanced Parkinson's disease, amyotrophic lateral sclerosis, Huntington's disease
• QURE ($33) - hemophilia B, congestive heart failure, huntington's disease
• BOLD ($37) - X-linked myotubular myopathy (XLMTM), crigler-najjar syndrome, pompe disease 

Since most of them are in early clinical trials (except ONCE), their valuations are hovering around $500M to $2B. Many of these companies are platform companies means they could be applied to multiple diseases.

Gene Editing:

Genome editing, or genome engineering is a type of genetic engineering in which DNA is inserted, deleted, modified or replaced in the genome of a living organism (courtesy Wikipedia). As of 2015 four families of engineered nucleases were used: meganucleases, zinc finger nucleases (ZFNs), transcription activator-like effector-based nucleases (TALEN), and the clustered regularly interspaced short palindromic repeats (CRISPR/Cas9) system

This is relatively new and one of the most promising field of biotech. In fact The CRISPR-Cas system was selected by Science as 2015 Breakthrough of the Year.

Companies in this area are:

• CRSP ($68) - sickle cell disease and beta-thalassemia. This is one of the most promising company and could start human trial in 2018
• NTLA ($25) - transthyretin amyloidosis, alpha-1 antitrypsin deficiency, hepatitis B virus, and inborn errors of metabolism programs
• EDIT ($37) - Leber Congenital Amaurosis type 10, a genetic form of vision loss that leads to blindness in childhood. The company has nice symbol too (EDIT) to suggest "Editing".
• SGMO ($16) - hemophilia B, Hemophilia A, and Mucopolysaccharidosis I (MPS) and MPS II. This uses ZFN which is older gene editing technology compared to CRISPER-Cas. That's why there is relatively less excitement around this company compared to CRSP.

These companies are opening new frontier of biotech similar to what KITE (got acquired by GILD for $12B), BLUE ($9B) and JUNO (got acquired by CELG for $9B) did 5 years back. I won't be surprised if many of the companies mentioned above get acquired for similar multi-billion $ valuations once their trials reach phase2/3 which should happen over next 3-4 years. Many of them would also fail leaving their valuations to dust. But that's nature of biotech. The "older" biotech companies like GILD, CELG as well as big pharma like PGE, Merck needs new sources of growth. So many of these companies have to acquire these to transform themselves. Last week President Trump signed "Right To Try" bill into law opening doors for many people to get access to these cutting edge treatments even before FDA approval. FDA is lot more friendlier under Trump. So all these factors are definite positive for these biotech.

Biotech investing needs patience and extreme risk-tolerance. If that's not your cup-of-tea, just stay away or follow biotech EFT (XBI)

Looking forward to sunny days of summer!

/Shyam