Harry S. Dent Jr.'s Blog, page 112

The Fact Is, Gold Is Not Money Today

Gold is

Make Greater Profits with Less Risk

All investors want the same thing… more profits with less risk.

Of course, that combo sounds a lot like “having your cake and eating it, too” – which we’re told is impossible.

But I’m here to tell you today that, when it comes to your investments, it is possible. (I can’t say the same about cake.)

You see, there’s a simple risk-reduction technique that you can use in the stock market to both increase your returns and cut your risk in half. But the technique is widely misunderstood.

In fact, most investors (mistakenly) think this risk-reduction technique is inherently risky. So they naively forego using it… even though your portfolio needs it to smooth out the natural up’s and down’s that come with investing.

Let me explain…

Earn Money 3 Different Ways From This 1 Investment

$150 billion is a lot of money.

And due to some planned changes the makers of S&P and MSCI indexes are making, that’s the amount of money that is likely to flow into shares of real estate investment trusts (REITs) over the next few months.

You see, up until now, REITs have been considered “financials” for the purposes of sector weighting.

Well, that’s just crazy.

A landlord that owns a portfolio of rental properties really has little in common with a bank or an insurance company. 

Yet that’s where REITs have historically been lumped.

But now that the index creators are fixing their mistake, there are going to be a lot of mutual fund managers and other institutional investors who will be pretty dramatically out of balance.

According to recent research by Jefferies…

… that $150 billion is how much would need to be reallocated to REITs so that mutual fund managers can meet their benchmark weightings.

I expect that the real number will be a decent bit lower than that. A lot of managers will be content to be underweight REITs relative to their benchmark. But even if it ends up being half that amount, that’s a big enough inflow to seriously buoy REIT prices. The entire sector is only worth about $800 billion.

I’m telling you this now because we’ve been mentioning REITs in Boom & Bust of late, and so far the results have been solid. But what I want to mention today is potentially even better.

If you believe in the REIT story… and expect REIT prices to go higher… and someone told you that you could buy a portfolio of REITs for 90 cents on the dollar… wouldn’t you jump at the opportunity?

Absolutely you would!

You’d be crazy not to!

Well, that’s exactly the situation today in the world of closed-end funds. And in Peak Income, the new newsletter I write with Rodney, I recently recommended a closed-end REIT fund trading for about 90% of net asset value.

Out of fairness to the readers who pay for that information, I can’t share the specific stock with you. But I can definitely tell you how I chose this fund and what you should look for when evaluating closed-end funds on your own.

With most mutual funds, you can really only make money one way: the stocks in the portfolio must rise in value. Sure, dividends might chip in a couple extra percent. But for the most part, you only make money if the stocks the manager buys go up.

That’s not the case with closed-end funds. In fact, you can make good money in three ways with this particular investment vehicle:

#1 – Current dividend is generally a large component of returns.

Unlike traditional mutual funds, closed-end funds are specifically designed with an income focus in mind, so they tend to have some of the highest current yields of anything traded on the stock market. This is partially due to leverage. Closed-end funds are able to borrow cheaply and use the proceeds to buy higher-yielding investments. This has the effect of juicing yields for you.

#2 – Returns delivered via portfolio appreciation. Just as with any mutual fund, you make money when the stocks your fund owns rise in value.

#3 – You have the potential for shrinkage of the discount or an increase in the premium to net asset value.

That sounds complicated, so I’ll explain. Because closed-end bond funds have a fixed number of shares that trade on the stock market like a stock, the share price can deviate from its fundamentals just like any stock can.

Sometimes, you can effectively buy a good portfolio of stocks, bonds or other assets for 80 or 90 cents on the dollar… or even less from time to time. But often, that same dollar’s worth of portfolio assets might be trading for $1.10 or higher on the market.

Well, I’m not a big fan of paying a dollar and 10 cents for just a dollar’s worth of assets… no matter how much I might like those assets. But I do rather like getting that same dollar’s worth at a temporary discount. And when that discount closes, your returns outpace those of the underlying portfolio.

The ideal closed-end fund investment should have solid potential from all three factors. It will pay a high current dividend, will have a portfolio poised to rise in value, and will be trading at a deep discount to net asset value.

Be sure to look for those three things when you research closed-end funds.

Charles Sizemore

Editor, Dent 401k Advisor

 

 

The Future Is Here: Welcome to the Tech Revolution

Here’s a riddle for you…

What touches 17 different sectors and is being called the next Industrial Revolution?

OK. That’s an easy one. It’s the

Like It or Not, It’s the Democrats’ Era, and Your Taxes Are Going Up

If Hillary Clinton and Donald Drumpf clinch their party’s nominations, Americans will have to pick between the the

The First Quarter Looks Like a Bust

The first quarter of 2016

Here’s Why Investors Don’t Trust Anyone in Power

Don’t lie, cheat, or steal. Those seem like pretty good rules to live by. Most of us learned these values as children. We watched our parents and, when we strayed from the straight and narrow, suffered through a variety of consequences. The message doesn’t get through to everyone, of course, so we still need prisons for criminals.

But there’s a group of people who exist in the gray area, that shadowy space between upstanding citizens and outright thieves.

They know the difference between right and wrong, which is clear from their pleas when they’re caught. But it’s all an act. Their intent is to mislead and betray. We only see their true colors after they’ve affected our lives.

So I’ve got a suggestion: shock collars. I don’t know how the technology would work – maybe you’d hook a lie detector up to some electrodes? – but the hope is that liars will get a jolt when they open their mouths, and the rest of us might be spared some pain.

We can start with the

Mortgage & Equity REITs: Two of the Best Values in Today’s Market

On a team full of momentum traders, I’m something of an odd man out at Dent Research. I’m a value investor. Some might even call me a dumpster diver. I like buying stocks that are cheap… dirt cheap… or even better, left for dead.

But there’s a little problem with that these days. There just isn’t a whole lot out there that can credibly be called “cheap” at today’s prices.

The S&P 500 trades at a

The 10-Year Treasury: It’s Less Than You Think

When the Fed was created in 1914, it was set to task of controlling short-term interest rates in an attempt to iron out financial cycles.

It succeeded for many years. But by avoiding the natural rebalancing (and occasional pain) from free markets, we just got a bigger bubble into 1929.

Then, when it finally burst,

Stocks Are in for a Daunting, Uphill Battle Over the Next 4 Weeks

My message today is simple…

Bullish investors – and the risk assets they’ve been buying – face a daunting, uphill battle over the next four weeks.

Now, I don’t have a crystal ball and I don’t bother with forecasting. But that doesn’t mean I can’t “look ahead” into the future and make judgments about what is likely orunlikely to happen.

What’s more, I don’t have to rely on gut feel to do this “look ahead” analysis. I simply rely on the same objective, data-driven tools that underpin our investment strategy.

You see, in a court of law, the burden of proof is on the plaintiff.

The defendant is presumed to have the established “power,” so to speak – the presumption of innocence. And the burden, or onus, is on the plaintiff to prove otherwise.

The same relationship applies to sports competitions. The onus is on the underdog… to prove he’s better than the reigning champion.

And finally, I think of financial market trends in much the same way.

When a financial market establishes a persistent upward (bullish) trend… I presume that that trend will continue, indefinitely… until a downward (bearish) trend emerges and takes hold. That’s the essence of trend-following.

So let’s put this concept in context of today’s market trends…

Since late last year, downward bearish trends have been prominent in a wide variety of risk assets. So even though bullish investors have had a nice run over the last two months… the longer-term, dominant trend is still bearish.

That means the onus is now on bullish investors – to prove they have the confidence and risk-tolerance to break the established downtrend… to dethrone the bears.

Now, this is where my “look ahead” analysis comes in.

Let’s take a look at six-month trends. The math is simple…

If today’s price is greater than the price six months ago… we’re in an uptrend.

If today’s price is less than the price six months ago… we’re in a downtrend.

Recently, a number of risk assets have crossed back into bullish (uptrend) territory. But the trouble is… those bullish trends might not last for long!

That’s because the reference price (that assets must exceed, to remain in a bullish trend) will be increasing dramatically over the next four weeks. Note: the reference price is simply the price of the asset six months ago.

A chart of the S&P 500 (SPY) should drive this concept home:

Currently, in determination of the six-month trend, the reference price is taken from October 5, 2015, when the S&P 500 (SPY) was trading at $198.

But over the next four weeks, that reference price will move up to $210 – a meaningful 6% increase.

So for the S&P 500 to stay in a six-month uptrend, it must continue to climb higher over the next four weeks. No rest for the weary!

Now, the S&P 500 doesn’t need to gain all that much over the next four weeks. But still, the onus is on the bulls to prove they have the will to bid prices higher.

And what’s more telling… is that many other risk markets have a much steeper mountain to climb.

I’ve done some “look ahead” analysis aimed at answering a simple question: how much would each market need to rally – over the next four weeks – for it to be in a bullish six-month trend four weeks from now?

Many of the required rallies are daunting.

The financial sector (XLF) would need to rally 8% in the next month.

The energy sector (XLE) needs to rally nearly 9% to be in an uptrend.

Within the energy sector… oil & gas subsectors (XOP and XES) need to rally between 18% and 19%.

And crude oil prices (USO) have virtually no shot at being in an uptrend come mid-May – it would take a 41% rally to get there!

I could go on and on… but all of the evidence points to the same conclusion.

Simply put: a majority of risk assets will be in bearish trends a month from now, unless bullish investors prove to have remarkable stamina and power.

All told, my analysis shows it’s best to remain cautious as we head into May.

Adam O’Dell, CMT

Chief Investment Strategist, Dent Research