Shesa's OCTOBER 2015 INVESTMENT BLOG

            18 Oct 2015

OCTOBER 2015 Investment Blog

Shesa Nayak  

U.S. Stock Market Commentary

Hello friends, welcome to my monthly investment blog. After a major correction last month, the stock market has been bouncing back nicely in last few weeks. We will discuss in details but first let’s take a quick look to the U.S. Stock Market Indexes.

U.S Indexes	2-Jan-15	Friday Close	Year-to-Date Change	YTD % Change
DOW	17823.07	17,215.97	-607.10	-3.41
S&P 500	2058.9	2033.11	-25.79	-1.25
NASDAQ	4736.05	4,886.69	150.64	3.18

Key Economy News

• Unemployment Rate remains at 5.1 percent. The U.S. economy added 142,000 jobs in September against expectation of 200,000 jobs. In addition, August job report was revised downward from 173,000 to 136,000. The market rallied after that with the anticipation that Federal Reserve is not going to raise interest rate in near future.
• Retail sales rose a seasonally adjusted 0.1% in September comparing to August against the expectation of 0.2%
• The consumer-price index fell by a seasonally adjusted 0.2% in September, matching forecasts. In September, the manufacturing index slipped to 50.2, down from 51.1 in August. This is the lowest reading for the index in over two years and very close to falling below the 50, which would signal a contraction.
• Interest Rate increase may not happen in 2015: As I wrote in my last month’s blog, Federal Reserve was just making noise and did not raise any interest rate. Later in their Fed minutes, the officials expressed worries about an economic slowdown in China and its potential to impede U.S. growth, which could keep inflation pretty low. The Policymakers decided that it would be "prudent to wait" for evidence that the economy has not deteriorated and that inflation would gradually move back toward Fed's 2% annual target. My perception is that Fed will not raise interest rate in 2015. 

Is the market going through a seasonal weakness or a bear market?

The stock market is going up and down. But it’s not much different than what happens every August and September, when the market hits a seasonal slump. There is no denying that, this year has been little more volatile since the market crash on August 25. The main culprits this years were, China and the never-ending Fed game “will she or won’t she” surrounding Janet Yellen and interest rates. Last year stock market was impacted due to a showdown by Russia over Ukraine and the Ebola outbreak. In the prior year, it was over fear that Fed ending their “QE” bond-buying program and so on.. So this year is not entirely different. I am still optimistic that this year the stock market will still have a moderate growth. In addition, I wrote in few of my previous blogs that stock market tends to do well during the election year though nothing is written on the wall.

What about Q3 2015 Earnings? As we know, Q3 earning has kicked-off in last few days. As of now, about 5% of the S&P 500 companies have reported earnings and nothing spectacular. I do not expect great earnings this quarter, as it will continue to be impacted by strong dollar and overall weak emerging markets. As estimated by factSet.com, “S&P 500 companies are expected to report an earnings decline of -5.5% and revenue decline of 3.3%” comparing to same quarter last year.

India surprises Stock Market with 0.5% Rate Cut

On September 29, The Reserve Bank of India (RBI) cut interest rates by 50 basis points in a move that surprised Wall Street. Most of the analysts were expecting 0.25% rate cut. Now it brings current interest rate to 6.75%. RBI has cut interest rates four times in the past 9 months to 1.25 percentage points since the beginning of the year. I anticipate that the current rate cut will largely benefit capital-intensive sectors like real estate, automobile, consumer goods and Banks. Now we could expect these sectors to rally once demand picks up after the rate cut. That should benefit INCO, which is in our blog portfolio. Moreover, stock market tends to do well during monetary easing environment. Indian stock market has bounced back in last few weeks and I feel it should continue to do well, benefiting other equity in the blog portfolio INDA and IBN.

What about China economy and our holdings?

• China equity markets have been rebounding in last few weeks and have outperformed the region. Why is that happening? Let’s analyze:
• Chinese government plans for the next five-year plan later this month. During this time, the Communist Party could announce some major economy stimulus.
• The PBOC told in the annual meeting of IMF and World Bank that the corrections in China equity market have/had limited impact on Chinese economy as Beijing has taken a series of measures to avoid systemic risks.
• The enthusiasm in stock market was primarily driven over a plan by PBOC to expand a pilot bank-lending program in different Chinese provinces.

The first phase of the China International Payment System will begin in Shanghai to handle deals in Asia and Europe. This is another step towards Yuan inclusion in the SDR, which is rumored to be in a month or so. If IMF includes Yuan then it will be another currency like dollar, euro, yen and pound. As a matter of fact, there could be some devaluation of dollar and that could help commodity sector.

A glance at the Commodity Sector

The next leg of the commodity bull market may not be driven by fundamentals rather it is expected to be driven by the currency markets. So it makes no difference if there is an oversupply of oil. Commodities have staged a bounce in last couple of weeks mostly due to emerging market recovery and dollar losing strength. All that matters in the years ahead is that there will be bigger oversupply of global currency due to all these quantitative easing. I still do not think a significant rise in oil prices in coming months due to over-supply. Gold and silver has also bounced back from its low $1070 to $1177. This month, gold has rallied more than 5% and is set for its best month since January after weaker-than-expected September jobs report. My analysis is that, Gold, silver and the mining stocks could go higher in next few months as demand increases. Indian festival deepavali and marriage season is approaching. The gold mining companies were in their lowest values since decades. Though, most of them are up but still very cheap. I have GDX, SLW, EGO and NUGT in the blog portfolio and hoping they should get pie. I suggest readers to gradually sell NUGT. Once there is little more bounce, I would remove from my blog portfolio as it’s extremely volatile and risky. So, I suggest readers to do their due diligence or send me email for further question. Now let us discuss this month inclusion to blog portfolio.

PowerShares Dynamic Pharmaceuticals ETF (PJP)

In my August blog I included IHF, which is a great fund for health care sector. This month I am including another great fund from Pharmaceutical industry. PJP is an Exchange Traded Fund (ETF) that invest at least 90% of its total assets in common stocks of pharmaceutical companies. The major holdings of PJP are Bristol-Myers, Pfizer, Johnson & Johnson, Amgen, Celgene, Gilead Sciences, Merck, Allegran etc.

Why do I like this fund? If you recall my August blog, I wrote that bio-tech sector has solid industry fundamentals, promising new drugs, increasing health care spending that makes this sector compelling long term investment. Also as I said, America’s population is getting older and 10,000 baby boomers turn 65 every day. In next 15 years, there would be more than 55 million Americans going over the age of 65. The aging population needs more healthcare attention and medications. Add to that, the biotech sector is beaten down heavily in last few weeks from its all time high of 4457 points to 3457 point, about 23%. PJP has come down from it all time high of $84 and currently trading at $69.71, about 17% discount to its 52-week high. It does not mean that it would not come down further. However, if we think about long-term investment then biotech sector has done exceedingly well in the past. Also, visualizing the future aging population it should continue to do well. I already have some position in PJP. The stock market and biotech in general have been extremely volatile in past few weeks. So it’s better to buy in a gradual manner. It would not be a great idea to be very aggressive at this point. But it may be worth taking some position for long-term. Now let’s see the performance of this fund as of 9/30/15:

Average	NAV Return
1 Year	7.52%
3 Year	26.42%
5 Year	27.18%
10 Year	16.36%
Life	16.86%

As we could see from above, it has given significant return for last several year and I am optimistic that it would generate greater return in years to come.

Risk(s): None of the equity is without risk. We know biotech is a very volatile sector and sometime difficult to predict how low can they go before recovering. Next year is the election year and change in political situation could change the dynamics, so also ROI. So does it worth the risk? For long term, I strongly feel so!

Blog Portfolio

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Changes	My Opinion (see disclaimer)	Earnings Date
STOCK
AAPL	56.12	111.04	1/25/13	98%	BUY	27-Oct
BIDU	86.43	151	4/18/13	75%	HOLD	29-Oct
GOGO	14	16.6	9/1/13	19%	HOLD	5-Nov
SLW	22	14.3	10/1/13	-35%	BUY	N/A
FB	47	97.54	11/13/13	108%	HOLD	4-Nov
TSLA	135	227.01	11/13/13	68%	HOLD	3-Nov
AGNC	16.54	19.16	12/14/13	16%	HOLD	26-Oct
MA	78.7	97.64	12/12/13	24%	HOLD	29-Oct
NLY	8.92	10.4	2/2/14	17%	HOLD	3-Nov
AMZN	311.73	570.76	4/12/14	83%	BUY	22-Oct
BAC	14.64	16.12	5/11/14	10%	BUY	Declared
BX	33.33	34.52	8/24/14	4%	HOLD	Declared
VIPS	22.68	18.64	11/23/14	-18%	BUY	16-Nov
GILD	102.21	102.83	1/11/15	1%	BUY	26-Oct
ALNY	89.1	84.91	2/6/15	-5%	HOLD	3-Nov
IBN	10.5	9.21	4/12/15	-12%	BUY	N/A
SFUN	9.95	7.06	6/14/15	-29%	BUY	4-Nov
EGO	3.4	3.97	7/17/15	17%	BUY	N/A
AXP	80.91	77.21	8/16/15	-5%	HOLD	21-Oct
MO	52.59	58.72	9/13/15	12%	BUY	29-Oct
ETF						N/A
GDX	27	16.39	4/1/13	-39%	BUY
NUGT	270	46.74	9/21/14	-83%	HOLD (trim)
INDA	31.94	29.61	3/15/15	-7%	BUY
ASHR	36.66	36.19	3/15/15	-1%	BUY
USO	16.8	15.22	3/15/15	-9%	HOLD
INCO	34.46	32.96	5/15/15	-4%	BUY
IHF	139.39	127.75	8/16/15	-8%	BUY
XLY	78.36	78.29	8/16/15	0%	BUY
PJP	69.71	69.71	10/18/15	0%	New BUY
MUTUAL FUND						N/A
FBIOX	117.73	225.72	3/1/13	92%	Accumulate
PRHSX	55.17	74.04	2/2/14	34%	HOLD
FSCHX	137.34	132.46	4/12/14	-4%	HOLD
FSCRX	27.3	28.46	10/25/14	4%	HOLD
GASFX	28.51	28.14	12/20/14	-1%	HOLD
PRMTX	63.52	70.52	12/20/14	11%	HOLD
FHKCX	30.52	30.04	2/8/15	-2%	HOLD
MINDX	26.94	28.02	6/14/15	4%	BUY
** DIV are included in suggested Price after end of the year. Hence price is adjusted.

Company Updates

Bank of America (BAC): Bank of America earned $4.5 billion, or $0.37 per diluted share, for the third quarter of 2015, compared to a net loss of $232 million, or $0.04 per share, in the year-ago period. The banks' revenue was $20.9 billion down from $21.4 billion last year. Still, the results beat Wall Street expectations. <BUY>

Blackstone (BX): lost 35 cents a share against Analyst estimate of 30 cents. Assets rose to 333.9 billion from 332.7 billion.

 NUGT did a reverse split of 1-for-10 on October 1. After that it reversed the trend and have bounced back nicely in last few weeks. I will be trimming some positions and remove from Blog Portfolio with some bounce. 

Major Economic Report next week (week 10/19/15)

Monday:  Home builder’s Index, Housing starts

Thursday:  Weekly job less claims, existing home sales

Also you can go to the following URL for more updates:

http://www.marketwatch.com/Economy-Politics/Calendars/Economic

Source: Marketwatch.com

That’s all for today. Wish you good investing! Stay tuned for my NOV 2015 blog. Thanks for your time. If you want to get alert on my action then please subscribe to shesagroup_invest@googlegroups.com. Also, feel free to send me your comments and suggestions or alert request to shesa.nayak@gmail.com

Disclaimer: This blog is meant to provide my personal opinion rather than professional recommendation to buy/sell any stock, ETF, mutual fund or any other security(s). As an investor, it’s your hard earned money and you decide what is best for you. The above are merely my own opinions. Please contact a professional money manager to buy/sell any security. I do not earn any commission by writing the blog. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow.

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