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24 Apr

Monday April 24, 2017

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Okay folks, as you know the first round of the French election is over, and I’m not so sanguine about how the American media are reporting the event.  Sure, the expectations were for a Macron/Le Pen finale for the May 7 vote.  That happened, but the reaction in the all markets at the Asian open tells me that maybe Wall Street has begun to celebrate the finalist win of establishment candidate Emmanuel Macron too early.

As of the writing of this report, in Asia, US stock prices are much higher, dollar-gold is down, and the euro is up against the US dollar and British pound.  And the financial headlines read like something akin to a epic-size hurricane has just missed the southern states of the Gulf coast.  

Of course, the fear of a finalist pairing of the “far-right wing” candidate Marine Le Pen and “far-left socialist” candidate Jean-Luc Melenchon would most likely have sent shock waves throughout the global financial system (much larger shocks than what we saw after Trump’s victory).  And a surprising better-than-expected vote count for Le Pen in the first round would have done some serious damage to the Trump rally, as well.

Neither happened.

But, I want to be on the record today and state that a Macron/Le Pen pairing might serve as a more dangerous outcome to the first round of voting than is presently priced into financial markets.

“An outright victory by [far-right populist] Marine Le Pen in France is likely to trigger a global equity selloff but the U.S. stock market will be the first to recover,” Diane Jaffee, senior portfolio manager at TCW, told MarketWatch on the eve of Sunday’s election.

“Such an outcome will result in chaotic markets, with European bonds and equities selling off, euro plunging. U.S. bonds will benefit, though U.S. equities may initially sell off too,” Ian Winer, director of equity trading at Wedbush Securities, warned readers of the same article by MarketWatch.

I certainly agreed with that analysis from both interviewees, but that scenario didn’t happen, as I feared.  

And who predicted the sudden rise during the final days of Melenchon, the ‘communist’ EU-hater, who came out of nowhere?  Well, the well-spoken and captivating socialist candidate missed making the second round by 0.8%.  Can you imagine how markets would have reacted to two ‘Frexit’ candidates (Le Pen and Melenchon) left standing for the May 7 vote?

In short, a combination of a better-than-expected vote count for Le Pen or a Le Pen/Melenchon pairing would have been a disaster for the EU.  The EU dogged a bullet on Sunday.  

And I had already touched upon the vacuous understanding of French politics by Americans in previous reports.  But what bothers me, now, however, is the expectation that Macron, the ‘establishment’s candidate’, should easily beat Le Pen on May 7.  

Macron is my favorite to win, as far as my analysis takes me.  And don’t get me wrong about who I ‘like’ and who I ‘don’t like’ when I say “favorite.”  Who I like is not my job.  My job is to make money for my readers based on the facts as I see them.  It’s just that I sense the market may be pricing-in an easy win for Macron, and may be very wrong for traders to be so complacent.

If future polls show the race narrowing in France between Macron and Le Pen, as we saw in the Trump/Clinton race during the first week of November, some interesting trades may develop.  

For those new to my reports, my strategic long position in FNMA before the November 8 US election made made a small fortune, as the stock price at that time was nearly fully discounted in anticipation of Clinton win.  Well, when it became known that Trump had won the election, the avalanche of knee-jerk buyers of FNMA made me a quick five-figure return in only a few weeks.  See my point?  

You must be positioned BEFORE the event, not after in the hopes of riding a wave that’s already in progress.  In the case of FNMA, latecomers also made money, although not nearly as much as I made on the FNMA trade.

And again for my new subscribers, my suggestion to buy the major averages at the 200-week moving average following the election turned out be a one-two punch higher in my paid readership and brokerage account balance.  The number of emails I received after my suggestion to pick up index ETF bargains at the 200-day moving averages even surprised me.  But now, I find myself ‘on the spot’ again.  

What trades may develop from the growing possibility of a much tighter presidential race in France than is now handicapped by Wall Street, Forex and precious metals markets?  I’ll be monitoring the trends in all market this week to see if any anomalies between asset prices need my scrutiny.  

For now, it’s too early to tell, but of course a trade in the ETF (VGK) comes easily to mind, as well as a play on a huge move in the euro against the US dollar and British pound are two more.  There may be better and potentially more profitable trades brewing than these ‘layups’.  I’ll let you know.

For some interesting reading about how the tune on Wall Street may radically change in the coming two weeks, read, ‘What are Marine Le Pen’s odds of victory?’.

And if that article isn’t enough to stir you into thinking of some trades and scenarios possible in the coming two weeks, go to Russia Today (if you cannot read French, translate to English) and read the source article of the latest WikiLeaks suspense thriller making its way around the Web.  The bottom line is, Assange apparently has some bombshell information about Macron that he got from the breach of Hillary Clinton’s email server, and is expected to release it at a time most disadvantageous to Macron.  And Assange is no fan of the EU.  He would love to see Le Pen as French president, as far as I can tell.

And I leave the subject about the French presidential election right there.

Okay, let’s move on to some more interesting information about LQMT and an update to the performance of my present picks.

My current portfolio: LQMT, CROX, LC, ANGI, SIEN and GRPN

This Week’s JBP Stock Ideas

There were no trades this week.  However, this week’s action did wonders for my portfolio, with LC moving up 4.76%, ANGI spiking higher by 11.15%, SIEN rising 6.62%, and GRPN trading up 6.01%.   After being down a few percentage points in my portfolio for some weeks now, I’m back in the green to a compounded quarterly rate of 15.8% with my present picks.

The standout this week was ANGI, as the stock caught a wave of buyers at the 50-day moving average (MA) at $5.70.

Here’s a reminder of what I wrote about ANGI on February 27:

ANGI is one of those stocks I believe has been oversold due to the lack of guidance, which may suggest to some traders that the company is in serious trouble.  Now trading at one-times revenue, I believe the stock suffers from another case of over-pessimism.  

I also wouldn’t be surprised if Angie’s is sold.  The company’s EV of $345 million is just barely more than its market capitalization of $326.27.  Hmmm.  

I’ve done pretty well with stocks whose management does a bad job of holding investors’ hands between quarterly results.  There’s a when-in-doubt-bail-out attitude among amateur traders that has suited me just fine in many cases.  I pick up stocks cheap.   

My downside for ANGI is $5 per share, but my upside is $8.25, a 2.87:1 reward-to-risk ratio, with an announced buyout as my best-case scenario for ANGI.     

Did anyone find any news that would warrant an 11% move higher to the price of ANGI?  I didn’t.  So, maybe something good is brewing at the company that has not been made public yet.  

The company announced its Q1 2017 quarterly report is scheduled to be released on May 3 (BMO).

Liquidmetal Technologies (LQMT)

Now, for my most interesting holding, LQMT.  Read this article published by China Daily, and easily surmise why I hold this stock.  The article is about Dongguan Eontec Co Ltd, Professor Li’s parent company of Liquidmetals, both in which he owns a majority and controlling stake.  

The article goes on to explain that amorphous metals technologies are entering a long “golden era,” and Li’s Dongguan Eontec/Liquidmetal Technologies pair are poised to become the world leader in this novel technology.

China Daily writes:

Some of Liquidmetals’s business orders could come to Eontec. According to Liquidmetal, Apple Inc recently extended its 2015 deal to keep the rights to an innovative alloy that the tech giant needs for its production processes.

“We will continue to work with the ‘fruit’ company,” said Li.

The Essence Securities report said amorphous metals will be widely used in the consumer electronics industry. Eontec has been a supplier of card slots and hinges to Chinese phone makers such as Oppo, Huawei, Lenovo and Coolpad.

Its next plan is to provide amorphous metal frames to more mobile phone makers at home and abroad. “This is a profitable market and our final goal in the consumer electronics industry,” said Li, adding that many mobile phone makers showed interest in forging cooperation with Eontec.

Funny.  The “fruit company,” Li said, referring to Apple Computer, of course.  

“Its next plan is to provide amorphous metal frames to more mobile phone makers at home and abroad,” the article reads.  

Li already has experience with Chinese phone makers, and “fruit company” has global rights to use Liquidmetal’s technologies.  So, Li controls the only maker of amorphous metals of the world, and has experience delivering product to mammoth-size Chinese phone device makers.  Hmm.  

And anyone owning LQMT rides with Li, who is in his prime years of business experience and energy level.  I think this move to lead the new age of liquidmetals technologies across the globe may be the beginning of cementing his professional legacy that goes back to his college years.  He must be one of the few true experts of this field, enticing Apple to hook with this technology years ago in anticipation of the industry’s maturity—which is beginning this year!

JASON’S WATCH LIST

Fannie Mae (FNMA)

No news about FNMA this week, but I found an interesting article about comments made by famed banking analyst Dick Bove, entitled, Rafferty Capital’s Bove Notes ‘Potential Game Changer’ for Fannie Mae (FNMA).  It’s definitely worth the read if you want to jump aboard the FNMA drama.

After the Trump victory in November, shares of Fannie Mae (FNMA) soared to as high as $5.00, from $1.65, an amazing move for only 16 days of trading.  At that time, Trump was viewed as a pro-investor president, likely to nominate a treasury secretary who would take sides with investors.  

Optimism and profit-taking held FNMA within a large trading range of $3.50 and $4.50, until February 21, the date the U.S. Court of Appeals ruled that investors have no standing to sue the Federal Housing Financing Agency (FHFA).  On the news, the stock plunged to $2.71, from the opening price on February 21 of $4.18 per share.

So, what now?  

Well, according to Height Securities analyst Edwin Groshans, further appeals are the only course left for investors, unless FNMA investors would like to wait as much as an estimated 11 years, according to Groshans, to recoup Fannie Mae’s value through earnings.

However, if suitors take their case against the FHFA, a successful ruling for the plaintiffs would realize “instant value,” according Groshans.

“It is our view that despite the string of court losses, legal action is the path that has the best chance of monetizing GSE preferred shareholder investments,” Groshans told Benzinga.

I agree with Groshians’ assessment.  What else can investors do?  The court system is the only way to go, as I see it.  

I’ve add FNMA to my Watch List because of the risk/reward profile of the stock.  Famed investor, Bill Ackman, of Pershing Square Capital Management estimates FNMA to be worth as much as $47 per share, if the plaintiffs prevail in the courts.  

I have no problems with Ackman’s estimate.  All I know is: FNMA is a clear double-digit stock price, when/if the value is released to investors and not retained by the FHFA.

Until next time…

Trade Wise and Green!

Jason Bond

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