Shesa's NOVEMBER 2016 INVESTMENT BLOG

        20 November 2016

NOVEMBER 2016 INVESTMENT BLOG

Shesa Nayak

U.S. Stock Market Commentary: There were two historic events that occurred in last couple of weeks. First, Donald Trump was elected as the president of USA. Secondly, demonetization of Indian currency was another big news. Both these news were beyond many peoples expectation. The polls taken were similar to what we saw in BrExit. Rather, this one is like BrExit+. After the news the DOW futures had come down 800 points and I believe the circuit breaker triggered. Gold price bumped up more than $70 and then subsidized most of the gain. However, next day it was a complete U-turn as market bounced back more than 1.5%. The biotech index was up more than 7%. Now the stock market indexes are almost at 52-week high. What next? What can we expect in the market once Donald Trump takes over? We will discuss more on that later.

Let’s first take a look to the U.S. Stock Market Indexes.

U.S. Indexes	4-Jan 2016	Friday Close	Year-to-date change	YTD % Change	52 Week High	Change from 52 Week High (%)
DOW	17425.03	18,867.93	1,442.90	8.28	18,934.10	-0.35
S&P 500	2043.94	2,181.90	137.96	6.75	2,193.81	-0.54
NASDAQ	5007.41	5,321.51	314.10	6.27	5,346.80	-0.47

Economic Reports and Interest Rate

I do have long updates today. Hence I won’t be spending time in writing economy reports. Please visit the following link to view the economic report:

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

Source: Marketwatch.com.

Interest rate

As expected, Federal Reserve did not raise interest rate in their FOMC meeting on Nov 1-2. The next meeting is scheduled for DEC 13-14. In my last blog, I wrote that “if the economy continues to do as the data are pointing at present then we may possibly see 0.25% rate increase in December”. I stand with the same view. I can say it’s now 60-40 probability.

Corporate Earnings

The corporate earnings announcement season for Q3 is over. I will put the details earning for most of my blog portfolio later on. Please refer to Company Updates section for earnings update on my blog portfolio holdings.

Investment Lessons from U.S. Election and future economy scenario

Most of the people expected a win for democrats. But this election simply stunned everybody, probably including Donald Trump himself! I would say the result was BrExit++. The DOW future was down 800 points on the election night. Both Nasdaq and S&P 500 futures fell so hard that they triggered a limit-down — the maximum amount by which they're permitted to fall before trading restraints kicks in. But the next day was a different story where in all major stock indexes shot up more than 2% gain and Biotechnology index was up whooping 7%! This election stunned everyone…

·      Almost all media were wrong.

·      The polls were wrong.

·      The pundits were wrong.

·      More importantly, the futures market, which has an excellent track record when it comes to predicting elections - was also wrong.

·      I too was wrong!

This was an important lesson for investors. It’s not worth predicting market timing, or commodity prices or the direction of the dollar. It’s just guesswork. If we guess wrong and we may pay a serious price, as the folks who assumed that stocks would keep going down after the financial crisis in 2008, and they are still sitting in cash... We accept that the future is largely unknowable and stick to a principled investment plan. Great investors like Benjamin Graham, Warren Buffett, and Peter Lynch hardly spent any time on economic forecasting. We may not have that brilliance but certainly we may learn some lessons… On the economic front, Donald Trump has promised individual and corporate tax cuts, accelerated energy development, and new infrastructure spending, all meant to grow jobs. I am mot sure if he would be able to implement all his promises. His big-spending agenda is going to fuel big deficits, debt, and inflation for years to come. Also, we need to see if he would able to unite republican and democrats to get the work done or jeopardy things due to his autocratic leadership style. We will know only after January 20. Till then it’s just guesswork…

My thought on how stock market may behave

I think market is excited with the assumption that Trump presidency would bring great result and that the election speeches were just propaganda. I am not too convinced with this notion. The authoritative attitude may become a spoiler. We still do not know how the geo-politics will play with other countries like China, Russia, Europe, ISIS and Muslim countries. Can he really repel and replace Obama care? How quickly can he bring those millions of jobs? What would be the cost of production and benefit of bringing those jobs? Do we have that efficiency in USA without bringing the workforce from other countries? How many corporates will be willing to bring the dollar from abroad to U.S with the reduced tax structure? How would be the trade policies with other countries? There are too many unanswered questions and uncertainties at this point. The planned larger spending by Trump for more than $1 trillion could definitely boost some growth for infrastructure development, defense etc. Coincidently, it could lead towards more inflation. There could be interest rate hike and that may help financial sector. Again, reminding the readers of my last blog that the U.S economy GDP growths under Democrats were robust 4.33%, against a much lower 2.54% under Republicans. I assume that the market euphoria could go towards the end of this year. The real test will happen after January 20 when market may realize the reality. Accordingly, we may see the market direction. The Trump presidency could bring many sectorial rotation of investment and as a matter of fact I would be changing the holding as I go. So, it won’t be surprising to see many changes in my portfolio holding going forward.

Demonetization of Indian currency – Is it good or bad for Indian economy?

A historic step that was taken by Prime Minister of India Mr. Narendra Modi to demonetize Rs 500 and Rs. 1000 currency. It was a bold move that nobody ever imagined in Indian context! It’s a widely acclaimed step taken for the people of India to curb corruptions in many ways. This unprecedented step would help Indian economy in long run and help boost-increasing GDP growth. The money that was hidden, would mobilize. As we know consumer spending in U.S represents 70% of GDP growth. Hence, these hidden money either would be destroyed by the corrupt entity or deposited in the bank and pay their due task. As a matter of fact, money circulation would significantly boost Indian GDP growth in future. India is on a roll. There are some pains for the shorter term but for longer term I am sure Indian economy will get a big boost.  This is also anticipated to shake up real estate in India, where more than 30-40% of the transactions were being made in cash. The stock market may have taken a beating but I am confident it would bounce back when the true result would be realized! Mr. Modi’s action is one of most courageous and acclaimed action taken for the upliftment of Indian economy and people of the country. We will see how it goes.. Now let’s see this month’s inclusion to blog portfolio.

Tocqueville Gold Fund (TGLDX)

It has been a while that I did not include any mutual fund in my Blog Portfolio. Hence I thought this might be right time to include a gold mutual fund. TGLDX invests at least 80% of its net assets in gold and securities of companies located all around the world, in both developed and emerging markets, that are engaged in mining or processing gold. As of 9|30|16, it had the following major holdings of Physical Gold was 11% and other gold mining companies comprises of the remaining percentage.

Why Gold Mutual Fund?

First, let’s see the negatives. Gold price has come down from its August high of to about $1370 to $1207 as I write, which is about 12% correction. However, a lot of miners have come down significantly. One of the major reasons is that, many traders were expecting a BrExit like scenario once Donald Trump is elected. But it did not happen that disappointed the traders. In addition, now market is anticipating that Fed will raise interest rate and that’s boosting U.S. Dollar, which is negative for gold. Also, gold demand from India was little lackluster.

Positives: With the proposed tax cuts of Donald Trump, inclusive of accrued interest and macroeconomic effects will increase the national debt by $7 trillion over the next decade, according to Forbes. There is no detail on how the President-elect plans to finance these tax cuts. This could potentially increase inflation. Another important news that I read is that, there would be a new ‘gold standard’ developed as part of a three-party collaboration between AAOIFI, the World Gold Council and Amanie Advisors which is expected to be announced Tuesday, December 6th. It’s anticipated that 1.6 billion Muslims of the world will have a new gold investment standard for the first time in modern history. The World Gold Council has stated that we can expect to see an additional demand of hundreds of tonnes, once the sharia gold standard is approved. If just 2% of the assets currently managed by Islamic finance institutions are invested into sharia-compliant gold products then we can expect to see over 1,000 tonnes of additional physical gold demand. Only time can tell what happens. It’s just a speculation at this point.

The investors are worried about the interest rate hike. Let’s have a look of last time when there were tax cut by the Republicans midst of 17 rate increases at the Federal Reserve.  During that time, gold and the stock market both soared:

Year	Gold Gain
2003	17.3%
2004	12.8%
2005	8.5%
2006	35.7%
2007	15.2%

Why do I think TGLDX may be good?

TGLDX is one of the market leaders for Gold related mutual fund. The miners are beaten down heavily. TGLDX holds many such gold miners in a diversified manner. If there will be a turn around in the precious metal then this fund would provide great return with limited risk. At this point, it’s difficult to judge which direction the gold price will move. Thus, it’s advisable to invest minimum and keep accumulating over a period of time. Also, gold provides diversification to portfolio and an insurance against market downturn. Hence, I believe TGLDX is a good inclusion at the current price.

	1 Yr	3 Yrs	5 Yrs	10 Yrs	Life
TGLDX	51.00%	1.14%	-12.90%	0.94%	10.87%
S&P 500	4.51%	8.84%	13.57%	6.70%	5.42%

NAV: $33.73.     NTF: No Transaction Fee in Fidelity.

Net Asset: $1.364 billion

Fund Inception:  6/29/1998

Morningstar Rating:  **** (4 Star)

Minimum Investment: $2500.00. Some institutions have $1500 as minimum.

Load: No Load and No Transaction Fee in Fidelity.

Expense Ratio: 1.44%

Beta: 0.06 è Risk: This is very little volatile than the market move.

Fund Managers: John C. Hathaway since 6/29/1998, Douglas B. Groh since 1/1/2012.

Risks: The mutual fund invests in gold miners. If the gold prices fall or U.S. Dollar keep increasing then gold price could go down further. If the sector does not perform well then ultimately the fund performance will be impacted.

Shesa’s Blog Portfolio

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Change	My Opinion (see disclaimer)	Comment
STOCK
AAPL*	54.09	110.06	1/25/13	103%	HOLD
BIDU	86.43	164.38	4/18/13	90%	HOLD
SLW*	21.8	18.72	10/1/13	-14%	HOLD
FB	47	117.02	11/13/13	149%	HOLD
TSLA	135	185.02	11/13/13	37%	HOLD
MA*	78.06	104.78	12/12/13	34%	BUY below $95.
AMZN	311.73	760.16	4/12/14	144%	BUY below $750
MO*	52.03	61.92	9/13/15	19%	BUY
ILMN	171.15	130.63	1/15/16	-24%	SOLD	See Update
SKX	31.88	22.9	2/21/16	-28%	BUY	See Update
BABA	67.28	93.39	2/21/16	39%	BUY
JBLU	20.44	20.73	4/24/16	1%	HOLD
JD	23.45	25.55	5/22/16	9%	BUY
ABX	22.21	15.73	7/4/16	-29%	HOLD
XON	26.37	31.19	7/4/16	18%	BUY
LUV	36.89	47.06	9/5/16	28%	BUY
FSLR	37.58	29.21	10/8/16	-22%	HOLD
ETF
GDX*	26.88	21.05	4/1/13	-22%	BUY
INDA	31.94	26.11	3/15/15	-18%	BUY
ASHR*	28.46	24.66	3/15/15	-13%	SOLD	See Update
INCO	34.46	31.58	5/15/15	-8%	BUY
IHF*	139.1	123.87	8/16/15	-11%	HOLD
XLY	77.76	81.2	8/16/15	4%	HOLD
PJP	69.43	58.11	10/18/15	-16%	HOLD
EEM	32.5	34.59	11/15/15	6%	BUY
MUTUAL FUND
FBIOX	117.73	192.93	3/1/13	64%	HOLD
PRHSX	55.17	63.92	2/2/14	16%	HOLD
FSCHX*	135.91	147.63	4/12/14	9%	HOLD
FSCRX	27.3	30.52	10/25/14	12%	HOLD
GASFX*	28.31	27.74	12/20/14	-2%	HOLD
PRMTX*	63.38	75.61	12/20/14	19%	Accumulate
MINDX	26.94	26.21	6/14/15	-3%	BUY
MCDFX	14.11	14.6	12/9/15	3%	HOLD
FSRPX	95.46	108.94	1/15/16	14%	BUY
FBSOX	38.78	41.8	3/20/16	8%	HOLD
TGLDX	33.73	33.73	11/20/16	0%	NEW BUY
* Indicates dividend adjusted

Positions closed since last Blog:

Equity	Sales Price	Buy Price	Date Sold	Gain / Loss (%)	Comment
ASHR	24.84	28.46	11/18/16	-12%	After Donald Trump presidency it’s unclear how U.S & China relationship will be. Also, ASHR is not doing much hence getting out of it.
ILMN	130.63	171.15	11/18/16	23%	ILMN really has/had great potential. However, for last several quarters it has been disappointing on Sales and Profit. Hence getting out of it.
SKK	23.03	31.88	8/2/16	-27%	SKX sales and profitibility over las few quarters have not been great as expected.

Company Updates (Earnings Result)

Apple (AAPL): Apple earned $1.67 a share a penny above Analyst expectation, down 15% year over year, on sales of $46.85 billion, shy below Analyst expectation of $46.94 billion, down 9%. Apple's fiscal Q4 ended Sept. 24, giving it just nine days of sales for the new handset and smartphone was supply-constrained in its first weeks of release. For the December quarter, Apple forecast sales of $77 billion at the midpoint of its guidance but it did not give an EPS target. (HOLD).

TSLA: Tesla Motors Inc. posted first ever-quarterly profit in its history as a public company. The company posted a profit of $21.9 million, or 14 cents a share, compared with a loss of $229.9 million, or $1.78 a share, in the year-earlier quarter. On an adjusted basis, the company posted per-share earnings of 71 cents. Revenue shot up to $2.3 billion from $936.8 million. The company also said it expects to post a profit in the fourth quarter, excluding some stock-based compensation. (HOLD)

Amazon (AMZN): The Company earned $252 million, 52 cents a share, while analysts were expecting 78 cents a share. Thanks to its growth on Amazon web services otherwise it could have gone negative. Revenue was in-line with predictions, coming in at $32.7 billion, versus an expected $32.654 billion. (BUY).

Southwest Airlines (LUV):  The airline posted earnings excluding items of 93 cents a share on revenue of $5.139 billion, against the expectation of 88 cents a share on revenue of $5.165 billion. (HOLD).

Barrick Gold Corp (ABX):  The Company reported third-quarter net income of $175 million, after reporting a loss in the same period a year earlier. It posted revenue of $2.3 billion in the period. The company earned a net income of 15 cents. Earnings, adjusted for non-recurring costs, came to 24 cents per share, against analyst expectation of 19 cents. < HOLD >.

First Solar, Inc. (FSLR) announced will slash around 27 percent of its global workforce and now expects its 2017 sales to fall well short of Wall Street's estimates making its share to fall. In addition, the current uncertainties after Donald Trump was elected as president because of his no-love for green energy brought FSLR to 52-week low. Visualizing the uncertainties it would not be wise to add more position. Rather I will keep an eye how it shapes and decide whether to keep it or not. < HOLD >. 

Master Card (MA): The Company reported a third-quarter profit of $1.08 per share on revenue of $2.88 billion. Analysts expected MasterCard to report earnings of 98 cents a share on revenue of $2.75 billion.  Sales jumped 14% to $2.88 billion, topping the consensus forecast among investors by $130 million. MasterCard's bottom-line figure was $0.10 per share better than most of those following the stock had expected to see. < Buy below $95>.

BIDU: Baidu reported adjusted earnings of $1.49 per share, topping analysts' expectation of $1.11 per share. Revenue fell 0.7% year-over-year to $2.74 billion, but beat Wall Street's projected $2.71 billion. It expects fourth-quarter revenue to be in the range of $2.68 billion and $2.76 billion, which is below consensus estimates of $2.86 billion. < HOLD >

Facebook (FB): Facebook reported adjusted earnings of $1.09 per share, surpassing analysts' estimates of 97 cents per share.  Revenue came in at $7.01 billion, higher than Wall Street's projected $6.93 billion. 

The CFO said 2017 would be a year of aggressive investment that will see a substantial increase in expenses. < HOLD >.

That’s all for today. Wish you good investing! Stay tuned for my DEC 2016 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 and some of the information provided may not be correct. 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.

Note: Click on Blog archives to read all my Blogs and updates.