Harry S. Dent Jr.'s Blog, page 106

RAOUL PAL: Economic Growth is Truly in the Toilet

Managing Editor’s note: We’ve invited Raoul Pal to write to you today to give you some insight on what he sees in the economy right now and what might be coming next. He is a former hedge fund manager, Goldman Sachs alum and writer of elite macroeconomic and investment research service The Global Macro Investor. Raoul advises many of the world’s biggest hedge funds, sovereign wealth funds, pension funds and family investment offices. We are pleased to have him speak at our October Irrational Economics Summit; be sure you don’t miss him.

By Raoul Pal, co-founder & CEO of Real Vision TV

Hello!

I’ve been in this financial industry game for 26 years now. Believe me, I’ve seen a lot of crazy markets… but nothing compares to the conditions we’re seeing now. “Irrational” doesn’t even begin to describe it.

But here’s the thing. As scary as this market is right now… it’s still totally “predictable.” That’s because, just like Harry, I believe that the natural ebb and flow of the business and economic cycle, the booms and busts, are natural and vital for long-term economic health.

Economies instinctively trend up, they trend down, and this consistency provides an almost static view of the markets. It’s like an economic snapshot and once you understand it’s cyclical, you know basically what to expect moving forward.

After years of skin in the game, I learned to reject theoretical economics and develop my own simple yet effective probability framework to predicting the global economy. It’s simple, with no complex theoretical models or spreadsheets.

This business cycle – the expansion and contraction of economic activity over time, is what drives the global economy and asset prices. That’s why I follow this cycle as closely as possible. To do so, I use the monthly Institute of Supply Management’s Survey (ISM) as my guide…

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Watch a sneak peek into my simple and effective probability framework now.

Real Vision is the only video-on-demand channel for finance, offering exclusive trade ideas and financial insights from the world’s most successful investors.

Try Real Vision free for 7 days .

As a valued subscriber of Dent Research, get a 10% discount when you sign up to realvisiontv.com today.

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And that survey data clearly shows that our economy peaked in 2011 and since then, we’ve been flirting with about 0% to 1% actual GDP growth. That’s practically dead in the water!

Since we’re in the contraction phase now, I agree with Harry that we’re due for an official recession to start sometime this year. It may start in the U.S., but of course, it will likely go global over time.

All of this is natural and fine.

What’s NOT fine is the central bank interference over the past several years. They’ve been trying to smooth down the business cycle and suppress volatility.

It may work in the short term, but it only creates hyper-volatility later. I believe that suppressing small problems now only creates larger economic imbalances down the road. (As you can imagine, Harry and I can talk about this stuff for hours!)

Adding to this looming problem is the fact that the meddling has gone on for so long now that these massive imbalances are an integral part of the system.

The flaws are now built-in, so taking the painful step that allows the chips to fall where they may is going to be unpleasant. Finding someone to make that move may be impossible! Nobody really wants to wipe out the banking system, but some things are unavoidable.

See, the business cycle is weakening and so the likelihood for the markets to encounter some sort of accident is quite high (and getting riskier by the day, especially now that markets have made all-time highs).

The banking system is just one of dozens of dominoes tilting precariously. Something rotten is lurking in the shadows of the world’s largest banks. Banks in Italy, Germany, and Switzerland are all in a freefall. This has already spilled over into the U.S. banking system, highlighting many weak banks that probably won’t survive a hard hit – like the one that may be coming.

Then there’s China and its debt problems… the Japanese debt (and demographic) problem… and Europe – it’s all around just a hot mess. Not to mention dozens of other issues out there waiting to cause problems.

I don’t know which one of these dominoes will be the catalyst for the collapse. Neither does Harry. Or anyone else for that matter. But there’s nothing more important now than setting yourself up to survive and even thrive during the storm ahead.

That’s why I’m looking forward to the Irrational Economic Summit this October in Palm Beach.

I’ll be there with about a dozen other esteemed panelists, and we’ve got plans for you. Strategies. Insights. The down and dirty. We don’t plan on just talking. We plan to help you take action. I hope you will join us.

In the meantime, don’t forget to watch my business cycle model where I turn the study of economics on its head and explain how to effectively forecast markets with a good level of probability, only on realvisiontv.com.

Until then,

Raoul Pal

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About Raoul Pal:

Raoul Pal is the co-founder and CEO of Real Vision TV. Real Vision is the the only video-on-demand channel for finance that gives you access to the world’s smartest and most successful investors, all in one place.  Diverse expert opinions and insights from financial giants including Kyle Bass, John Burbank and Hugh Hendry, means you’ll be able to get exclusive trade ideas and learn how to think smarter, protect your money and invest more profitably.

Raoul Pal is also the writer of elite macroeconomic and investment research service The Global Macro Investor, which is read by many of the worlds largest hedge funds, sovereign wealth funds and family investment offices. He is also a Goldman Sachs alum and former fund manager of GLG Partners Global Macro Hedge Fund.

The post RAOUL PAL: Economic Growth is Truly in the Toilet appeared first on Economy and Markets.

Pokémon… Go, Disrupt This

Ben Benoy

What happens when you take a Japanese cartoon franchise from the 1990s and turn it into an augmented reality scavenger hunt application on a smart phone?

Pure chaos.

Finding dead bodies, robberies by tech savvy thieves and driving cars off the road are just some of the side effects the hot new Pokémon Go application has spawned in its first week of release.

This scavenger hunt on steroids is called Pokémon Go, and in less than a week from Since its July 6 launch in the United States, it is already installed on 10% of all smart phones, with the amount of average daily users sitting around 21 million.

Yes, 21 million. That’s more users than any other mobile game ever produced, and it has just been a week!

Not a mobile gaming fan? Well, read this metric. For those that download this app, average time spent on it for Apple IOS users is north of 33 minutes per day. This surpasses Facebook, Snapchat, Twitter and Instagram for average app time spent on Apple devices.

Yes, this little gem is more popular than social media. Maybe that’s a good thing considering it gets people off their couches.

So, what’s the big deal?

Pokémon is a cartoon franchise started in 1995 by Satoshi Tajiri and partially owned by Nintendo. The game’s premise focuses on capturing fictional creatures, and then training them to fight so they battle each other.

The franchise originally rolled out a cartoon series to hook kids on Saturday morning television. Not long after that, Tajiri branched out into traditional console and card games for kids.

This old-school franchise got a new twist when it took advantage of today’s relatively new technology called augmented reality, also known as just AR.

AR blends views of our real-world environment with computer-generated graphics, video or sound, so the two environments (real world and computer generated) appear in the same dimension.

The Pokémon Go app uses the camera on your smart phone to capture your surrounding real-world environment.

It then embeds over a hundred different Pokémon creatures in various locations around your town that you have to go out and capture in a scavenger hunt.

As you might imagine, this has led players into very exotic and unwanted locations within their home cities and it’s causing quite a stir. Players hunting down rare and elusive Pokémon are deluging police stations, restaurants, and even peoples’ homes.

Two players in California literally walked off a cliff chasing down a Pokémon while glued to their smart phone screens.

We’ve also seen savvy thieves robbing players who venture far off the beaten path to find these elusive digital creatures, as well.

One girl in Wyoming, and another in Florida, even found a dead body while looking for a Pokémon!

The Snorlax, from Pokemon Go.

Love it or hate it. Augmented reality applications and games are a smash hit and becoming big business.

Nintendo stock on the Tokyo stock exchange has climbed over 80% after release of the game and its immediate viral reception.

From all of this, expect to see augmented reality technology saturate other industries and Information Technology verticals, besides gaming, in the coming year.

Bottom line: games can be big business if the right disruptive technology is applied.

Count on your Dent Research team to provide you with the latest insights into technology that you can profit from for market plays.

Oh, and one last thing. If you happen to be a Pokémon Go player, please be careful and keep an eye on your surroundings. As a professional napper, that Snorlax isn’t going anywhere.

 

Happy hunting!

 

 

 

Ben Benoy

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JOHN DELVECCHIO: Two Dividend Stock Tips You Don’t Want to Miss

   John DelVecchio

It may be called a “sideways” market more often than not, but really, it is just all over the place.

Up.

Down… All around.

It’s emotionally trying, in times like this, to say the least. That’s why it’s important to have a strategy that works with your emotions. The only challenge then… is sticking with it.

And I mostly short stocks. Which is a tough game when the market blows off nearly all bad news only to rally to new highs.

Since shorting stocks is a rarity, I’m often asked two questions when I meet new people:Are companies still as aggressive with their accounting as they were in prior decades before regulations like Sarbanes Oxley went into effect? The answer is yes. Just because someone signs off on a piece of paper doesn’t mean they weren’t aggressive in their accounting or worse yet committed fraud. Liars lie all the time.


So, the next question I often get is “well I own stocks and want to own stocks, so what can I do about it to protect myself.”

Most investors do not want to short stocks. It’s a totally different process and less familiar to most people. And though they can make a killing with me going short, I tell these folks that they should consider companies that pay you first.

By putting the shareholder (you) first, you can avoid a lot of the risk brought on by management shenanigans used to keep the stock price up and line executives own pockets.

Prudent management teams can generate market-thumping returns. My own research into companies with “good shareholder yield” returned over 15x the S&P 500 since 2000.

Good shareholder yield is the focus of our coming newsletter Hidden Profits.

One of the most obvious ways to get paid first is to receive a dividend. Dividends rule. According to the data presented by Ned Davis Research, dividend initiators and growers have compounded at 9.8% since 1972.

That would turn $100 into $6,467.

On the opposite end of the spectrum, non-dividend paying stocks have returned just 2.3% annually.

In the 1980’s it became easier for companies to buy back stock. Since then though, dividend payers have significantly out-performed companies that only buyback stock.

But, of course, we have good buybacks and bad buybacks. That’s something I will discuss in my next go round at Economy & Markets.

The deathblow to a stock is when the company cuts or eliminates dividends. Those stocks have seen a $100 investment shrink to $78 since 1972.

Yuck.

Quality matters. You could be receiving a dividend and then it’s cut and the stock implodes.

Or, the dividend could be paid while the business around it melts down like an ice cube. At Hidden Profits we go beyond surface level analysis and search for companies that will pay you first for the foreseeable future. And, more importantly, can pay you even more over time.

Let’s look at a couple of quick examples.

Off-the radar local banks often dish out sturdy dividends. Capitol Federal Financial (CFFN) does, but no one’s watching.

Throughout its over 120-year history, CFFN has been headquartered in Topeka, KS.

It is too small for institutions, has negligible analyst coverage, sports an unimpressive 2.4% dividend yield, and carries a dangerous payout ratio of over 100%.

But I know better by digging into the fine print.

CFFN has way too much money – far beyond required capital ratios.

Overcapitalization has a great margin of safety to cover loan losses and can return cash to investors. So why the measly 2.4%?

The online services don’t report that CCFN (with only two exceptions) paid two special dividends since 2002.

CFFN’s first pay out the first comes mid-year, and the company actually names it – True Blue® Capitol Dividend. Then at the end of the year, the company pays a “true up” dividend to complete the payout of all unneeded cash.

The actual dividend total may vary slightly year to year, but the stock doesn’t sway with it. And every time CFFN stock slips below book value, management buys back stock too. Capitol management puts us first.

Boeing (BA) is thought of as a cyclical stock, with business that rises and falls with the economy and airline industry. So what looks good in the last 12 months or few years often turns bad tomorrow.

But that’s changed with more profitable and growing air traffic, especially in the Middle East, Latin America, Africa, and Asia-Pacific regions.

Over 70% of exploding demand and orders are for single aisle planes, and Boeing’s 737 is the top choice. And the 737’s newest model is 20% more fuel efficient to boot.

Boeing 737 fuselage

Boeing is winning the war against Airbus for big aircraft; too, with a 45% share of the commercial aircraft market, it has bulging competitive muscle.

Boeing’s yield today is 3% – 50% higher than the S&P 500’s 2% – and it has room to grow, with only a 51% payout ratio. Plus, it’s cheap at 11 times free cash flow, which is one big reason savvy management has a current buyback authorization of 8% of its shares.

Low valuation, buybacks (which retire dividend obligations on those shares), and good payout ratio mean sustainable and likely rising dividends ahead. The stock hasn’t moved much from late 2013 levels, while business and valuation have improved. Good for buyers.

That’s just two stocks.

There’s more where that came from with great potential to line your own pockets first.

The next time you look to buy a stock, consider if management has your interests in mind by paying you first just like we do at Hidden Profits.

 

 

 

 

John Del Vecchio

Editor, Forensic Investor

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HARRY DENT: Our Money Velocity Sucks

Harry Dent

Dr. Lacy Hunt has been featured more than any outside speaker at our IES conferences. Why? Because he’s the only classical economist I fully admire and he is a successful bond investment manager in the real world that understands the trend towards deflation, despite unprecedented money-printing.

I love the gold bugs for being realistic and honest about the debt and financial asset bubble we’re in, especially when most mainstream economists and analysts are blind to it.

What kills me about the gold bug types is that they always see hyperinflation from unprecedented money-printing, and they don’t go back and analyze what actually happens when debt bubbles finally burst and deleverage…

DEFLATION!

There is no other cure for excessive use of financial drugs, and that is what excessive use of debt is – plain and simple. Debt is a financially-enhanced drug that has major costs down the road.

It’s like detox for heroin addicts.

It is ugly, but it purges the system of the drug and allows it to be healthy and grow again. There is no easy way around that once you are highly addicted and toxic from it. And we are witnessing the greatest debt and financial asset bubble since the early 1970s, more so than 2000!

Lacy is a classical, Austrian economist that totally gets how debt and financial bubbles build and how they deleverage and burst. Only Steve Keen in Australia (now London) garners a similar respect from me for such research.

Lacy has the “voice of God,” as Rodney calls it, and always has interesting charts and research. His bond fund at Hoisington Investment Management has continued to be a long-term winner betting on deflation, not inflation, showing he puts his money where his mouth is.

But my favorite of all of his charts – and the most unique – is his chart on money velocity, going back to 1900.

See larger image

This chart clearly shows a major cycle in rising and falling money velocity. And money velocity has everything to do with the expansion of our money supply from leveraged bank lending against 10% deposit and capital reserves.

Money is created like magic. But it also disappears just as fast when things go south… now you see it, now you don’t!

It is Lacy’s explanation of this chart that sets him apart from other clueless economists, and even the best gold bugs.

Note that average trend line across the chart, at a money velocity of about 1.74 times. That is normal. When money velocity is rising faster than that, it is a sign that businesses (and consumers and governments) are making productive investments in new capacity that raise profits, wages and so on.

It’s a win-win for the economy and most everyone.

When money velocity starts falling however, as it did after 1918 and after 1997, it is a sign that investment is going into more speculative pursuits that don’t create productive capacity and returns – like stock buybacks and mergers and acquisitions for businesses, or like flipping tech stocks or condos for households.

That shows you are entering a bubble economy, like the Roaring 20s or the Roaring 2000s (as I termed it in my 1998 book title).

But when you start falling below that long-term average of money velocity you are entering a deflationary or deleveraging stage, which we did from 2008 forward… but such deleveraging and deflation has been simply covered over by endless QE and money-printing.

Despite such “something for nothing” stimulus, money velocity continues to decline. That’s why we aren’t getting inflation, nevertheless hyperinflation, and why we won’t in the future!

Deflation is the only trend for the next several years and no one understands that better than Lacy Hunt. I may have a little debate with him on the rising odds of a near-term spike in Treasury yields before we head towards even lower rates again.

DON’T miss him at our October 20-22 IES conference in Palm Beach!

Harry

 

 

The post HARRY DENT: Our Money Velocity Sucks appeared first on Economy and Markets.

Dr. Lacy Hunt: Yes, The Economy Is Actually That Bad

Debt. It’s good, it’s bad, there’s too much of it, the government keeps piling on more of it. What’s the deal?

You may have none, you may have too much, but one thing is certain, debt is a major driving force behind the world economy. Both in our personal lives and in the lives of immense corporations struggling to hold on in an ever-changing economy. Make no mistake, debt patterns will continue to shape all of our financial landscapes.

Given this unavoidable fact of life, when we had the chance to sit down with Dr. Lacy Hunt of Hoisington Investment Management to discuss his upcoming appearance at our Irrational Economic Summit in October, debt is where we began.

U.S. consumers have racked up almost $1 trillion in credit card debt, despite some saying this is a great sign, that this means consumers are optimistic and will buoy the economy, Dr. Hunt does not agree.

He immediately points out that debt is a two-edged sword and that if additional indebtedness doesn’t work to create income to pay down interest and principle, it is a no-win deal.

See, when you agree to spend borrowed money today, you’re leveraging that against your future income. That means that the dollars you’ll earn tomorrow are already spent and will not be there to use in the future for anything else. Seems obvious, right?

Of course, this is not a problem if you expect your income to increase as time marches along and your payments become due. But how many people in America are facing an increase in personal income when the standard of living hasn’t changed one iota in 20 years? Not many.

Unfortunately, this is not on the forefront of most people’s thoughts when they go to buy something like a new car. Dr. Hunt points out that new car sales are buoying portions of the economy, but that credit-lending standards have slipped, much like they did for mortgages prior to the housing crisis in 2008 (Harry has been talking about the auto sector soon getting turned on its head for months!).

To illustrate this, Dr. Hunt points out that the average automobile loan has gone from six years to eight in order to allow less qualified buyers to purchase more expensive cars than they might otherwise have been able to afford.

This allows buyers to make smaller payments over a longer term, but also exposes them to the risk of missing any one of those 96 monthly payments.

But what about student debt? That has always been one way to invest in ourselves, and our children, and foster new revenue streams to pay down interest and principal. Dr. Hunt has bad news on that front, as well.

From Dr. Hunt’s interview with Rodney Johnson:

Unfortunately, the economy is performing so poorly that a lot of our college graduates are coming out and they’re having to settle for jobs that are not much better than what they would’ve received if they had gone directly into the labor force from high school.

Even classically “good debt” like a college education has become a non-performing investment. That’s scary because Dr. Hunt also points out that this deluge of debt, and our eagerness both as a country and as consumers to incur the “wrong type of debt” is killing growth.

This debt is slowing GDP growth and the growth of our personal incomes and investments. “That’s why”, Dr. Hunt points out, “the standard of living is unchanged from where it was 20 years ago.”

These are some cold, hard facts from one of the premier investment adviser’s in the country. It’s tough to read and painful to understand, but it’s true. And ideally, we’re in the business of truth and understanding the challenges facing all investors.

If you’re up for more of it, stay tuned because we’ll be bringing you excerpts from interviews with all our upcoming Irrational Economic Summit speakers in the weeks leading up the October event.

Thanks and play safe,

 

 

Robert Johnson

Editorial Director, Dent Research

The post Dr. Lacy Hunt: Yes, The Economy Is Actually That Bad appeared first on Economy and Markets.

Even The Twinkie Has To Adapt To A Changing World

     Rodney Johnson

In 2004, Hostess Brands declared bankruptcy. At the time, I wrote that the maker of Twinkies, Ho Hos, and Snoballs was suffering because of demographic trends.

As millennials aged past elementary and middle school, they quit munching on such snacks. With fewer kids in the younger age cohorts, slower Twinkie sales seemed inevitable

But that wasn’t the end of the not-so-good-for-you sponge cake.

The company quickly exited bankruptcy back then, only to find itself on the financial rocks again in 2011.

While the second go-round wasn’t as quick as the first, Twinkies reappeared on store shelves by 2013. Part of the reason for the snack’s troubles are demographic, but its return is almost completely due to the painful process of deflation.

In 2004, Hostess might have been bankrupt, but it wasn’t about to end operations. Instead, the company reorganized. It renegotiated contracts and demanded concessions from its unions, which included both bakery workers and delivery drivers.

The moves put Hostess back on track, at least for a little while, but the financial crisis and healthier eating habits proved insurmountable.

The company filed for bankruptcy again in 2012, after sales fell 20% in 2011. But this time, management did things a little differently. Leading up to the bankruptcy they stopped contributing to the workers’ pension fund while granting themselves pay raises and bonuses.

All the moves were legal, even if distasteful. When it came time to negotiate the reorganization, union members were irate, particularly those of the Bakery, Confectionary, Tobacco, and Grain Millers Union.

They had kept their jobs in 2004, but only after agreeing to pay cuts and bigger pension contributions. In their eyes, management had squeezed the lifeblood out of the company and the workers, and now wanted more.

Negotiations dragged on for months. The Teamsters, representing the delivery drivers, agreed to a new contract, but the baker workers refused the company’s overtures as too stingy.

The two sides never found common ground.

The company thought the employees would sacrifice again to keep their jobs, while the workers thought the company would give in to keep the bakeries humming.

In the end, the bankruptcy judge ordered the liquidation of the company to pay creditors.

The Twinkie died in 2012, taking with it more than 18,000 jobs as Hostess shut down 36 bakeries, 242 depots, 216 retail stores, and 311 other facilities. This happened across the country, from New Jersey to Alaska.

Dean Metropoulos, an American billionaire who at one time owned Pabst Blue Ribbon beer, bought some, but not all, of the Hostess assets out of bankruptcy. He intended to revive the iconic snack, but without the baggage of the previous company.

By mid-2013, Americans could get their fix of Twinkies and other Hostess snacks, but the displaced workers weren’t back at their jobs.

Instead, Metropoulos took the recipes to new, automated bakeries and delivered them through non-unionized means. The results are undeniable. Hostess is on the verge of going public again as a healthy, growing company. One company plant employs 500 people and produces more than 1 million Twinkies a day, representing 80% of total output.

Under the old regime, this took 14 plants and 9,000 employees. The company is on the verge of automating the process for cupcakes as well, which will also enhance profitability… and employ fewer people.

Hostess was forced to deal with demographic trends, financial realities, and changing consumer tastes. Management tried to do this by making changes at the margin, but basically keeping the old system of manufacturing and delivery intact.

It wasn’t possible.

The business model was based on sales and pricing from years past. To compete in today’s market required using innovative techniques and cheaper resources, which are deflationary (lower cost) by nature. The snacks couldn’t survive based on the system developed in the 1930s and ’40s, but they are thriving in their new environment.

The biggest group of losers in this story is workers – the bakers, drivers, and others who lost their jobs in 2012 or took significant pay reductions. This is the same story we’ve told many times, including companies Harley Davidson and Mott’s Juice.

Companies have to adapt to the changing business environment. When deflationary forces are at work, like now, costs must come down or companies can’t compete. With labor comprising the largest expense for many companies, workers are a natural target.

This goes a long way in explaining stagnant wages and the recent “gig economy” phenomenon, and doesn’t paint a bright future for employment over the next several years.

It’s enough to make you want to eat a Twinkie.

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Especially With Investing, Information Is Power

We started this week in the U.S., with the market’s Brexit losses a quickly fading memory and the Dow and S&P 500 up nearly 2% for the year. So, more of the same really, a rosy sheen glazed over a central bank fueled morass of… who-the-heck-knows-what’s-next type of uncertainty.

But with the stock and bond markets shuttered Monday for the 4th of July, Rodney took the opportunity to remind us that the past 10 years of central back interference is just one small part of the daily intrusion we all suffer at the hands of our elected officials.

Rodney pointed out that what makes countries, economies, and individuals strongest is the opportunity to make our own mistakes and to find our own solutions.

Or, as Rodney wrote:

I think if we scaled back the amount of government involvement in our daily lives, from punishing interest rate policies to crushing regulations and offensive asset forfeiture, we could at least be optimistic about the future for our children.

If we give small businesses a chance, instead of requiring permits to be landscape workers or makeup artists, then perhaps more people will strike out on their own.

In short, if we take back the freedom to make decisions, good or bad, then perhaps we can put the country back on the right path. Whether that turns out to be true or not, at least we would know one thing for sure – we were true to our heritage of giving everyone the right to determine their own path.

We all feel this way at Dent Research and most of you likely do too. That’s why you’re here, reading this, because you want the tools and information necessary to make your own informed decisions.

Because good or bad, a choice is far better than no choice at all.

And it was Adam O’Dell who drove this point home in his Friday post about the energy sector:

Energy stocks are also influenced by seasonal factors. Oil refineries typically do routine maintenance during the first quarter of the year. During the second quarter, refineries switch from producing winter-blend fuel to summer-blend. What’s more, demand for various petroleum products goes through seasonal cycles, as the weather changes.

All told, seasonal influences affecting the energy supply chain create a rather predictable pattern for energy stocks. They’re typically strongest between late-February and early-May. Then they’re weakest between mid-May and late-September.

 

This was a follow up to Adam’s Tuesday Trade Alert where he closed one position at 50% gains and next advised members to jump on these energy stocks as we prepare for the seasonal spiral within that sector.

We hope you followed along on that trade and look forward to keeping you ahead of the curve in this whacky, sideways market.

Isn’t this the type of smart, relevant insight that we all want? We think so. Especially when it comes to investing and expanding upon our hard-earned cash? It is. And that’s why Adam’s Cycle 9 Alert is so popular with our readers.

 

Play Smart,

 

 

 

Robert Johnson

Editorial Director, Dent Research

The post Especially With Investing, Information Is Power appeared first on Economy and Markets.

Huge Gains During All Four Seasons In Energy Stocks ...

Huge Gains During All Four Seasons In Energy Stocks

Adam O’Dell

Energy stocks have been on a tear recently.

The SDPR Energy Sector ETF (NYSE: XLE) gained a whopping 34% in less than five months, between January 20 and June 8, 2016.

This move easily caught the attention of the financial media. And since energy stocks came into 2016 already 40% off their 2014 highs, the early-year rally led many analysts to conclude that “the bottom is in” for energy stocks.

I think they’re wrong.

I think energy stocks are headed lower from here, not higher.

And I’ll explain why…

You see, there’s a seasonal pattern to financial markets.

Stocks typically make most of their gains between November and April. Then they produce lackluster returns (with more volatility) between May and October.

The seasonal pattern doesn’t play out exactly like this each and every year. But when you look at decades’ worth of data… that’s the seasonal tendency you’ll find.

Energy stocks are also influenced by seasonal factors. Oil refineries typically do routine maintenance during the first quarter of the year. During the second quarter, refineries switch from producing winter-blend fuel to summer-blend. What’s more, demand for various petroleum products goes through seasonal cycles, as the weather changes.

All told, seasonal influences affecting the energy supply chain create a rather predictable pattern for energy stocks. They’re typically strongest between late-February and early-May. Then they’re weakest between mid-May and late-September.

Take a look for yourself…

This chart shows the average monthly return of the SPDR Energy Sector ETF (NYSE: XLE) for each calendar month of the year:

As you can see it typically pays to be invested in energy stocks between February and May… then out of energy stocks between May and September.

This seasonal pattern of strength and weakness applies to the energy sector ETF (XLE). But it also applies to a number of related, energy-market ETFs; including, the SPDR Materials Sector ETF (NYSE: XLB), the SPDR Oil & Gas Exploration ETF (NYSE: XOP), the SPDR Oil & Gas Equipment ETF (NYSE: XES), and the price of oil itself, as seen by the United States Oil Fund LP (ARCX: USO).

For each of these, the pattern is roughly the same: strength between February and May, then weakness between May and September.

Take a look at the average monthly performance of this “Energy Portfolio,” which includes equal investments in each of the five ETFs above (XLE, XLB, XOP, XES and USO):

The point I’m making is simple: don’t buy into the energy rally!

At this point, energy prices are more likely at a peak than a bottom. And if this chart doesn’t keep you out of energy-market investments for the next few months, I don’t know what will.

Of course, if you’re open-minded and willing to bet against energy-related investments… now is a great time to make some bearish bets.

In fact, I’ve recommended two bearish bets on the energy sector to my Cycle 9 Alert readers. One is a bet against the energy sector, in general. We’re positioned for lower prices between now and mid-September.

 

The other is a specific bet against a foreign energy producer… one that just so happens to be in a world of hurt. It’s mired in a political corruption scandal and is facing a multi-billion dollar pension shortfall. Basically, the company is trash… and I estimate its stock price could be cut in half between now and October.

I just recommended this position last week, so there’s still time to get in. The specific investment I told Cycle 9 Alert readers about is still within my recommended entry price range… and I estimate this investment could triple your money, at least, if the stock gets knocked lower during the energy sector’s seasonal summer slump. Click here to gain access.

Again, regardless of what you do… I suggest not buying into the energy-sector hype.

Hello, I'm Adam O'Dell Try my Cycle 9 Alerts Trading system for 90 days - risk free!

Using my industry-beating algorithm, I track the movements of nine key economic sectors as they rotate in and out of favor. I then leverages that information to predict short-term stock movements with a startling degree of accuracy. Don’t believe me, see for yourself…

Access Cycle 9




More by Adam O'Dell
Survive The Next Crash

June 30, 2016

Plenty of misconceptions exist about investment systems. It’s an esoteric field, so I’m not surprised. But the reality isn’t that mysterious or complicated.

Read More
A Whiplash Market

If you’re feeling a sharp pain in the back of your neck – a la whiplash – you’re not alone. The stock market has been one heck of a roller coaster ride this year!

Read More
Not Your Dad's Insurance

I recommended a specific insurance policy on May 26. And by September 1, I told members to “cash out” – locking in a net profit of 165%…

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The post appeared first on Economy and Markets.

Profiting From The Seasonal Shift In Energy Stocks

Adam O’Dell

Energy stocks have been on a tear recently.

The SDPR Energy Sector ETF (NYSE: XLE) gained a whopping 34% in less than five months, between January 20 and June 8, 2016.

This move easily caught the attention of the financial media. And since energy stocks came into 2016 already 40% off their 2014 highs, the early-year rally led many analysts to conclude that “the bottom is in” for energy stocks.

I think they’re wrong.

I think energy stocks are headed lower from here, not higher.

And I’ll explain why…

You see, there’s a seasonal pattern to financial markets.

Stocks typically make most of their gains between November and April. Then they produce lackluster returns (with more volatility) between May and October.

The seasonal pattern doesn’t play out exactly like this each and every year. But when you look at decades’ worth of data… that’s the seasonal tendency you’ll find.

Energy stocks are also influenced by seasonal factors. Oil refineries typically do routine maintenance during the first quarter of the year. During the second quarter, refineries switch from producing winter-blend fuel to summer-blend. What’s more, demand for various petroleum products goes through seasonal cycles, as the weather changes.

All told, seasonal influences affecting the energy supply chain create a rather predictable pattern for energy stocks. They’re typically strongest between late-February and early-May. Then they’re weakest between mid-May and late-September.

Take a look for yourself…

This chart shows the average monthly return of the SPDR Energy Sector ETF (NYSE: XLE) for each calendar month of the year:

As you can see it typically pays to be invested in energy stocks between February and May… then out of energy stocks between May and September.

This seasonal pattern of strength and weakness applies to the energy sector ETF (XLE). But it also applies to a number of related, energy-market ETFs; including, the SPDR Materials Sector ETF (NYSE: XLB), the SPDR Oil & Gas Exploration ETF (NYSE: XOP), the SPDR Oil & Gas Equipment ETF (NYSE: XES), and the price of oil itself, as seen by the United States Oil Fund LP (ARCX: USO).

For each of these, the pattern is roughly the same: strength between February and May, then weakness between May and September.

Take a look at the average monthly performance of this “Energy Portfolio,” which includes equal investments in each of the five ETFs above (XLE, XLB, XOP, XES and USO):

The point I’m making is simple: don’t buy into the energy rally!

At this point, energy prices are more likely at a peak than a bottom. And if this chart doesn’t keep you out of energy-market investments for the next few months, I don’t know what will.

Of course, if you’re open-minded and willing to bet against energy-related investments… now is a great time to make some bearish bets.

In fact, I’ve recommended two bearish bets on the energy sector to my Cycle 9 Alert readers. One is a bet against the energy sector, in general. We’re positioned for lower prices between now and mid-September.

 

The other is a specific bet against a foreign energy producer… one that just so happens to be in a world of hurt. It’s mired in a political corruption scandal and is facing a multi-billion dollar pension shortfall. Basically, the company is trash… and I estimate its stock price could be cut in half between now and October.

I just recommended this position last week, so there’s still time to get in. The specific investment I told Cycle 9 Alert readers about is still within my recommended entry price range… and I estimate this investment could triple your money, at least, if the stock gets knocked lower during the energy sector’s seasonal summer slump. Click here to gain access.

Again, regardless of what you do… I suggest not buying into the energy-sector hype.

Hello, I'm Adam O'Dell Try my Cycle 9 Alerts' Trading system for 90 days - risk free!

Using my industry-beating algorithm, I track the movements of nine key economic sectors as they rotate in and out of favor. I then leverage that information to predict short-term stock movements with a startling degree of accuracy. Don’t believe me, see for yourself…

Access Cycle 9




More by Adam O'Dell
Survive The Next Crash

June 30, 2016: Plenty of misconceptions exist about investment systems. It’s an esoteric field, so I’m not surprised. But the reality isn’t that mysterious or complicated.

Read More
A Whiplash Market

June 16, 2016: If you’re feeling a sharp pain in the back of your neck – a la whiplash – you’re not alone. The stock market has been one heck of a roller coaster ride this year!

Read More
Not Your Dad's Insurance

June 2, 2016: I recommended a specific insurance policy on May 26. And by September 1, I told members to “cash out” – locking in a net profit of 165%… that’s $26.5K for every $10K.

Read More

The post Profiting From The Seasonal Shift In Energy Stocks appeared first on Economy and Markets.

Bond Bubble To Burst

Harry Dent

The great commodity bubble has been steadily bursting since mid-2008, but has taken a nosedive since early 2011. It’s now down 70% overall, and 80%-plus in industrial commodities like iron ore.

Real estate has seen its first bubble burst and it clearly looks like a second one is on the way.

Stocks have now seen a third bubble and the largest burst is still just ahead… but, the question remains: when does it begin in this   endless realm of QE and stimulus?

The bond and gold markets may give us some clues here. Look at the 10-year Treasury bond yield below:

The last major spike in yields peaked at 5.3% in mid-2007, just ahead of the great financial crisis.

That crisis brought yields down to 2% in late 2008 – both from recession fears and U.S. bonds becoming the safe-haven play along with the U.S. dollar – not gold!

But QE brought yields back up to just over 4% by early 2010 and they’ve been falling ever since. Gold is following right along with it, with inflation unexpectedly sinking, rather than rising, after unprecedented QE.

By mid-2012, the first fall in yields was down to 1.37%. We’re now at levels even lower than that, with interest on the 10-year Treasury reaching 1.34% Wednesday morning.

This should be a strong endorsement, especially with Lance Gaitan’s Treasury Profits Accelerator predicting a snap-back, near-term move down in bonds (up in yields).

I think a major, or at least substantial, reversal in yields going back up could come soon – just as everyone now expects yields to keep going down towards zero.

And that’s the problem.

The “dumb money,” or large specs (mostly failing hedge fund managers that have become the trend followers instead of the trend leaders), are at near-record bullish levels long on futures while the commercials (insiders), or smart money, are at record short levels.

They’re the ones that are right at major turning points like this. If the shorts are right, then yields will go up substantially… likely for many months.

Last November, in Boom & Bust’s “The Fixed Income Trade of the Decade,” I was forecasting that 10-year Treasury yields could spike back up to 3%, or higher, making that the time to buy, as deflation will likely bring them back down towards zero for years afterward.

You get higher yields and higher appreciation in the same investment that doubled in value in the 1930s while everything else was collapsing.

Let’s hope that bond yields do go back up, as the smart money extreme short positions suggests. This could be a long-term bottom in yields but, more likely, the last low near-term before the ultimate lows hit years from now.

The large specs in gold futures are also at record bullish levels, while the commercials are at record short levels. That suggests we are also close to the peak of the bear market rally we have been predicting, with gold towards $1,400.

We hit $1,373 gold on Wednesday, and it is likely to make it to $1,400. If we don’t make it to $1,400 by July 15, I will advise selling anyway. So, it’s time to start selling gold and silver if you didn’t already do so in April 2011 when we recommended it.

Here are the important insights:

If gold goes down it suggests slowing – not rising – inflation, as gold correlates more with inflation than anything else. Either that and/or we don’t see another massive round of higher QE and stimulus, as is currently expected.

If Treasury bond yields rise, it would suggest higher inflation… or more likely in this case if gold is falling, there’s an increased risk even for sovereign bonds.

How could that happen, you ask?

Once investors start to realize that Italy is the next Greece, and that it’s too big to fail (or bail out), yields in Southern Europe may start spiking.

Germany and Northern Europe could then follow, as they will have to bail Italy out (or not), and that move could prompt investors to question all bonds, even U.S. Treasurys.

Or, put more simply, the long leveraged futures trade in sovereign bonds may finally reverse due to overconfidence and investment!

To summarize: if we see gold down and bond yields up, this will likely be bad for stocks and would suggest the first large crash in stock hits sometime between mid-July and December of this year.

A clear break below the line in the sand at 1,800 on the S&P would confirm this. In the July issue of The Leading Edge, I will look at all major markets around the world and show why there has already been a clear top in 2015, and why a crash looks increasingly imminent, whether U.S. large-cap stocks eke out a slight new high or not… and I think not.

If we do get a spike back to around 3% or a bit higher in 10-year Treasury yields in the next several months, it would bring about The Fixed Income Trade of the Decade in long-term Treasurys, and AAA corporate bonds, that did the best of any other sector in the Great Depression decade of the 1930s…

We will evaluate that if it happens, in case the global debt implosions get so extreme, so fast, that we end up seeing a longer-term bottom in Treasury yields here just below 1.4%.

But more importantly, the present configuration suggests a major crash in stocks very soon rather than later.

That’s why it’s time to get more conservative in stocks and hold out for the long Treasury and AAA bonds trade likely still ahead.

The post Bond Bubble To Burst appeared first on Economy and Markets.