Harry S. Dent Jr.'s Blog, page 113

A Few Tips for Lowering Your Tax Bill This Year

I hate paying taxes, and can be something of an ideological nut job when it comes to avoiding them.

In my younger days, before my wife dragged me kicking and screaming into normal, civilized behavior, I was known to subsist on rice and beans for a month or two at a time.

Back then, I did just about everything I could in order to free up cash to max out my 401(k) plan, Roth IRA, HSA plan and any other tax-free savings vehicle I could get my hands on.

Yes, it was Spartan. But it saved me a ton in taxes over the years, and I’m still enjoying those benefits years later.

Don’t worry, I’m not going to recommend you go to my ridiculous lengths. My pathological need to lower my tax bill is probably unhealthy, but with the tax return deadline coming up on Monday, I figure a little advice on prioritizing is in order.

It might be too late to put any of this into practice for your 2015 return. But you can absolutely make a dent in your 2016 tax bill. So, with no more ado, here are a few tips for lowering your tax bill this year.

It starts with the 401(k). Before you invest a single red cent in anything else, you should come as close as you reasonably can to

We’re in Uncharted Territory, With Unintended Consequences

One of the best things that ever happened to me was my grandfather gave me $5,000 when I was born. My dad then invested that money conservatively, in bonds, and by the time I was off to college, I had enough money saved up to pay for my education. I graduated with no debt. That was a huge benefit to me starting my life as an adult.

I got to thinking yesterday that I won’t be able to do the same for my unborn children. Interest rates are near zero, and in

Another Tax Credit, at Taxpayers’ Expense

This year, tax day arrives soon after Tesla Motors

This Will Be the Largest Evaporation of Wealth in Modern History

If there’s anything the Chinese have going for them,

The Financial Health of U.S. Consumers Is Tepid at Best

The U.S. economy has added

Foreign Energy Stocks May Be Up, But Don’t Take the Bait

Crud oil prices shot 22.6% higher in the four weeks ending March 18. That was its best four-week stretch of performance since June 2009.

Naturally, it was impossible for investors to ignore that phoenix-like rise from the ashes, as it was widely cheered in the mainstream financial media.

But after watching oil drop 15% in 10 days recently… you have to wonder: who still has the stomach to be an energy bull!?

Put yourself in their shoes…

Between April 2011 and June 2014, you watch oil prices go nowhere… losing about 1% in 38 months.

Then, you watch a “rout” chop 50% off the price of crude in six months – between June 2014 and the start of 2015.

You’re thinking: “That was rough! But surely the worst is over.”

Then, after falling to new lows in March 2015, crude rallies some 37% into May.

Suddenly, you have hope again! “The new bull market must be just beginning,” you think.

But then it tumbles again… deepening its drawdown to 60% by July… 70% in December… and 80% in February of this year.

The point is: no one’s made money being an energy bull in the last five years… but everybody wants to believe that higher energy prices are just around the corner.

I’m here to tell you: don’t bet on that just yet!

Of course, most retail investors don’t invest directly in oil.

We’re more accustomed to buying stocks than commodities. So when popular sentiment is bullish on energy commodities, like oil and natural gas, you tend to see energy-sector equity markets get a boost…

And you see an upswell in the stock markets of major energy-producing countries… like Brazil, Russia and Canada.

That story hasn’t been as prominent in the mainstream media. But my Cycle 9 Alert algorithm has picked up on the recent interest in the stock markets of these countries.

As I told my Cycle 9 subscribers on Tuesday, the stock markets of these three countries are ranked at the top of our International Leaders & Laggards Board…

Russian stocks (RSX) are ranked #1… after gaining 8.1% year-to-date.

Canadian stocks (EWC) are ranked #2… up 7.1%.

And Brazilian stocks (EWZ) are ranked #3… with an eye-popping 22% rally since the start of the year!

Each of these energy-driven foreign stock markets has easily beaten the returns of major U.S. indices in 2016. And each one is currently a “buy,” according to the rules of my Cycle 9 Alert system.

They’re in a six-month uptrend, and
They’ve built up market-beating momentum over the last three months.

The fact that my system is triggering buy signals in the stock markets of major energy-producing countries suggests investors are once again anticipating better days ahead for energy prices.

But while these signals are certainly prompting us to take notice, I’m not convinced that high-risk energy bets are the best place for your money in this environment.

For one, we’re less than a month away from the stock market’s notorious seasonal soft spot – the start of “Sell in May and Go Away.” If investors prove to be exhausted from the rockiest first four months of a year ever… they may go into hibernation come summer, leaving energy stocks without convicted buyers. What’s more, May through September has historically been the worst time to buy energy stocks.

Second, both the U.S. energy sector (XLE) and crude oil (USO) are still in long-term downtrends. I hate fighting the trend… so even though Russian, Brazilian and Canadian stocks have reestablished uptrends, bullish investment in those markets require going against the dominant trend in oil prices (which is still bearish). That’s risky.

And finally, my World Spread Indicator says now is not the time to be overly bullish.

This indicator – which measures the spread between top- and bottom-performing stock markets around the world – is unusually high. Currently, it’s at 36% – showing a three-month gain of 18.2% from Brazilian stocks (EWZ) and a three-month loss of 18.4% from Italian stocks (EWI).

My research shows that any time the World Spread Indicator is below 25% – it’s a good time to invest in the riskier corners of the stock market. But when the spread is above 25% – as it is today – you’re more likely to do better in defensive investments, like bonds.

All told, I’m interested in the recent rally mounted by the stock markets of major energy-producing countries… but, I’m not yet comfortable being a buyer.

For now, you should let the bottom-picking energy bulls have a go at Brazil, Russia and Canada. At this point, the excessive risk isn’t worth the potential reward.

Click here to see how I have Cycle 9 Alert subscribers positioned currently… it may surprise you.

To good profits,

Adam O’Dell, CMT

Chief Investment Strategist, Dent Research

 

 

There’s a Better Way to Generate Income!

I know this is old news, but I can’t help it. It still blows my mind.

In February, the yield on the Japanese government bond went into negative territory… and it’s been there ever since. As I’m writing this, the yield is -0.06%. That means that on a $100 investment held to maturity, investors are locking in a guaranteed annual LOSS of six cents.

U.S. bonds are at least in positive territory. But the 10-Year U.S. Treasury offers a very uninspiring 1.7%, and it’s hard to find any bond not rated as junk that pays a respectable yield these days.

It makes my head hurt to think about it, but that’s the state of the bond market. We’ve gone from risk-free return to return-free risk.

But of course, this is only if you limit yourself to conventional income generators like bonds. If you’re willing to look a little outside the box, you can still manufacture a very decent current income. It may not be your grandfather’s stodgy, old bond portfolio, but it will pay your bills just as well.

REITs, mortgage REITs and closed-end funds all have something in common: they’re all worth more dead than alive.

Most mortgage REITs and closed-end bond funds trade at deep discounts to their book values. In other words, if you had infinitely deep pockets, you could quite literally buy up the entire company, shut it down, sell off its portfolio for spare parts… and actually walk away with a profit of nearly 20% in some of the most extreme cases.

These are real numbers. Mortgage REITs and closed-end funds are required to regularly report on the market values of their portfolios, and I see discounts ranging from 10% to 20% across the board. These kinds of discounts should never exist in the “real world,” but that’s exactly what we have today.

The pricing with equity REITs (or the ones that hold land and buildings rather than mortgage securities) is a little more complicated since they generally don’t report the current market values of their real estate holdings. Getting current appraisals on an entire portfolio of properties would be prohibitively expensive. But most estimates put the pricing of the REIT sector at a pretty significant discount to the market values of properties it owns.

Again, that’s nuts.

The whole shouldn’t be worth less than the parts. Yet it is.

And you should take advantage of this setup!

In Boom & Bust, we’ve been busily taking advantage of these pricing anomalies. Already in 2016, we’ve added new positions in a solid mortgage REIT and in a health care and senior living REIT, and I expect both to perform well for us this year.



But while we like the opportunities in REITs and mortgage REITs, we see the opportunity in closed-end funds to be extraordinary enough to warrant an entirely new newsletter. That’s why Rodney and I launched Peak Income a couple of weeks ago. Our sole purpose is to find good opportunities in the closed-end bond space.



In the very first issue, Rodney gave subscribers a solid, tax-free municipal recommendation yielding 6.1%. That’s equivalent to a yield of more than 10% for investors in the highest marginal tax bracket. Even better, the fund is trading at a 6% discount to its liquidation value.

I followed that up in the March issue with a recommendation for a REIT and preferred stock fund currently yielding a fat 7.8% and trading at an 11% discount to its liquidation value.

Compared to the income options you’ll find in the bond market, these would be enough to make a yield-hungry investor salivate.

So, in this environment, your job is to abandon the return-free model that has become the standard and return to the risk-free return model. Look to the asset classes I mentioned today… and consider signing up for Peak Income. Researching these asset classes is time consuming – and research you must – so let us help.

Charles Sizemore 

Editor, Dent 401k Advisor 



P.S. In future editions of Economy & Markets, I’ll share more details about how these asset classes work, and maybe even give you details of some you can consider investing in yourself. Stay tuned!

 

 

Manufacturing in America: Are American Jobs Worth $30 Socks?

My younger daughter doesn’t conform to, well, much of anything. As a very young girl she insisted on doing her own hair. She liked pony tails – lots of them – but as a four or five-year-old, she didn’t have much skill at getting them right. This meant that she often had 11 or 12 fountains of blonde hair sticking out all over her head. She was very proud.

Much to her dismay, in the sixth grade we enrolled her in a private school that requires a uniform. The queen of individual expression met the tyranny of “The Man,” but she wasn’t about to be deterred. She found her outlet inside her shoes. Every day she insisted on wearing rule-breaking colored socks, and they could not match.

Today she is a senior at the same school, still wearing colored socks that don’t vaguely resemble each other.

I know she’s breaking the rules. I know she’s staging her one-woman protest. But she also might be doing something else – supporting manufacturing in America, one foot at a time. While that sounds like a noble effort, should she?

There’s a woman in Ft. Payne, AL whose companies make the kind of socks my daughter wears. Her name is Gina Locklear, and her two companies, Zkano and Little River Sock Mill, make socks only using U.S. goods and labor. There’s just one problem.

The socks cost $13 to $30 per pair.

Note, my daughter does not wear this brand.

The Debt Bubble Is Bursting. Could This Be Curtains for Stocks?

Recently I had a conversation with a large investment advisor. I recounted how I started my first fund to short technology stocks in 2002, and my second in the fall of 2007 to bet against financial companies. I told him that I would start my third fund right here, right now. This was just last week.

Sometimes I feel the stock market is a lot like that movie

More People, Less Food: Say Goodbye to All-You-Can-Eat Buffets

Imagine if Golden Corral, the super buffet restaurant, released a report stating that by 2050, their business model would no longer be sustainable.

No longer would they be able to offer an all-you-can-eat buffet with all the fixings of a Thanksgiving feast. Rather, they’d replace it with an all-you-can-drink smoothie bar with tasty protein options.

The reason: massive food shortages.

Clearly Golden Corral didn’t release such a report, but the World Bank did. The organization forecasts that by 2050, we’ll need 50% more food to feed the world’s population.

So here’s the problem. Between now and 2050, they expect the world’s population to grow