How to Profit in Global Capital Market

Hi, there, it has been four months since my last post, since I have been busy preparing for my wedding party. Recall my article about US real estate industry in may. In that article, I made the following conclusion: Fed may put up QE3, and US real estate market has hit the bottom.

Now you find it is true. QE3 come out, and the stock price has increased by another 30% since May. If you are holding those stocks, you will have made over 30% in the four months. DHI from 17 to 21, MDC from 29 to 39, TOL from 26 to 34, LEN from 29 to 38.

What to do next? People tend to worry about the financial situation of US government in months, so they are selling stocks. I will tell you this will not be a big problem. No matter who will be US president in the next a few days, everything will be fine. You just need to be prepared, waiting for the good stocks be attractive. There are many such stocks, e.g., GOOG, Yelp, NDAQ.

Though the Dow Industrial is still at the 12500, many stocks are almost at the lowest price ever since. People who sell stocks hold the opinion that US economy are still bad at the moment, and they still worry about the European debt crisis problems.

However, I think it is a good time not to sell stocks, but to buy stocks. Many stocks whose P/E ratios are around 8-10, with 5% dividend annually, are well worth holding for years. Once the market turned to bull, those stocks will have a P/E ratio at 20 or so, and you even continuously get the dividends year by year!

That’s the easy reason why you should hold your stocks.

Many so called fund managers are expressing their anger about the mistake of nasdaq exchange during facebook IPO last week. They accuse that the mistake caused facebook stock price to slump. I understand their mood. It is human nature that people tend to be angry when their tradings get in a mess. However, I do not think the facebook stock price decrease is due to the mistake.

It is the 3rd date after facebook IPO. If the mistake caused the first date chaos, what about the next three days? You still think it is the mistake of Nasdaq? If the facebook stock is worth $100, it should increase to at least $80 the next day.

So the only reason that Facebook is worth $32 is that: people only want to buy it at this price.

Real estate related stocks have  foreseen the recovery of US real estate market. See the stock price of the following stocks, they have increased by over 50% since the end of 2011. As Fed might put up QE3 after the operation twist, I hold the opinion that the US real estate market has hit the bottom.

Ten-month average has come to 77.75 this month, and will be around 78.1 next month. Since USD index hit 81.78 in January, it has experienced a four-month retreat.

As OT2 come to an end, Fed has not decided whether to execute QE3. The 10-year inflation expectation is now over 2.2%, more than the threshold of 2%. Crude oil is also around $120. I think USD Index will go up next month, to about 82, and 85 at the end of August. In that situation, Fed may come to the conclusion of QE3.

Two home building companies. After the 2008 financial crisis, it has been four years for real estate to go down. The average home price has decreased over 30% since then. I believe the decrease will end soon. KB home and MDC are two home building companies, and will benefit from the real estate recovery.

Dow industrial index meet strong resistance above 13000, and US economic data tend to slow down in the recent months. I guess Dow industrial index might decrease to 11500 in months, and at the same time the European debt crisis will burn around the world.

But do not worry if things go like this. Fed will put out QE3 then, which will make US economy go steady. If you still have cash then, I think 11500 is a good point to buy US stocks. I can image US economy will have a big process in the next a few years.

USD index trend: bull trend
short term support: 78.50
short term resistance: 81

Yelp close at 24.58 last Friday, over 60% increase compared with IPO price. I had planned to buy yelp at some price a little more than $15, but the market did not give me the chance. The result is that I only had to buy the stock at a price much higher than I planned.

The reason why I want to buy yelp is as follows: Yelp now has achieved annual revenue of 0.1 billion, while the cost is 17 million more. I guess the total annual revenue might increase to 1 billion, in three to five years, since customers will be more and more used to this kind of credit searching APP. At the same time sellers will be more and more used to publishing Ads on such web. At present the total market value of Yelp is about 1.6 billion, and I think this will be a 10 billion or even more business.

Admittedly, yelp is confronting many problems. It has not achieved profits yet, and the loss seems to be increasing. If the loss is for its future good, I would be supporting the company strategy.