August 2 Post

Hi Again,

 From 6/30/16 to 7/31/16, the market (Dow Jones Industrial Average) rose by 2.87% but our portfolio went up by 4.04%!! Remember 86% of the active money managers failed to beat the market in 2014.

 After 18 months, the market hit an all-time high on 7/12/16! According to the historical data that I have studied, the probability of market rising another 10% to 20% from this point is very high. However on 7/14/16, Blackrock announced that they have concerns about the US market as international markets are down and there is so much money on the sidelines. They also expect the 10 year US Treasury to go down to 0.75%.  For many years it was around 2%. Markets always climb a wall of worries so this is good (bullish) for the market. Also if there is a lot of money on sidelines, it is extremely good (bullish) for the market. Low US Treasury rate has all to do with negative interest rates in most countries (Europe, Japan and so on). However when this range reverses, we could have a big bear market in the US. On 7/12/16, Julian Emanuel, Executive Director of UBS stated that he expects the S&P500 to go up another 20% to 2500. Technician Sebastian, who correctly predicted the BREXIT market bottom stated on 7/19/16 that he expects the S&P 500 to go up to 2200 within the next 30 days (that is another 1.99%).  Now the market is rather expensive with a PE of 20. For the longest time, it was hanging around 15. Just prior to the market crash in 1987, the PE was at 29. Unless there is a rapid increase in corporate profits, we could have a market correction.

 Glaxo Smith Kline- On 8/1/16, Google (Alphabet) announced that they will work with Glaxo Smith Kline to create a new company to develop Bioelectronics Medicines. The joint venture will be named Galvani Bioelectronics and it will be headquartered in the UK- 55% of the equity owned by Glaxo and 45% of the equity owned by Google (Alphabet).

 Twitter-  Q2 earnings were reported on 7/27/16. Their profits beat Wall Street estimates but once again their revenue figures were lower than Wall Street estimates. This is the 4th consecutive revenue miss. This news brought down the share price by 13%. New users increased slightly- by 100,000. Snapchat is killing Twitter. On 7/19/16, CNBC announced that more people got information on the political campaign from Twitter more than Facebook but still Twitter could not use this to raise revenue. Takeover talks are back again so this could shoot up overnight. Technically, chart shows a double bottom around $14 which is very good (bullish) for Twitter.

 GE- Per Barron’s, on 7/16/16, biggest increase in short interest for the week 6/15/16 to 6/30/16 took place in GE. It went up 65% in 2 weeks to 188 million shares. No wonder GE rose so much in July. Also in July, GE and Microsoft announced a partnership with respect to the ‘cloud’ businesses.

 Exxon & Chevron- Per Doug Terreson on 7/29/16, the Q2 earnings just reported was the worst in a decade but the bad news was well known; and we should expect the same for the next few quarters as well. He is optimistic about the long term future and he believes that the dividends are safe. He expects Oil (WTI) to rise to $60 by year end. He recommends Shell with a 6.6% dividend rate. Barron’s recently featured Shell on their front cover as a great buy.

 Apple-Reported Q2 earnings on 7/27/16. Smart phone revenue was down 23%, China sales were down by 33% and PCs were down 13%. The good news was that their services sector was up by 20%, and if this sector keeps growing, it is going to change a lot of bears in to bulls. Earnings call was not bad as expected so the share price rose $6+ to $103. Last week, for the first time they went over 1 billion phone sales.

 Have a great month!