Harry S. Dent Jr.'s Blog, page 82

“Boring Is Beautiful” Is the New “Greed Is Good”

It’s the monologue that launched thousands of Wall Street careers.

“The point is, ladies and gentleman,” intones Gordon Gekko to the shareholders of a fictional takeover target, “that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit…

“And greed – you mark my words – will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”

Gekko propagated beyond Oliver Stone’s 1987 film into video games, multiple TV shows here and in the U.K., and even an FBI campaign against insider trading.

Michael Douglas’s portrayal of a character who made a virtue of avariciousness is so vivid that one reporter, during a September 2008 Q& A session with the actor related to his work as a United Nations ambassador for peace, asked: “Are you saying, Gordon, that greed is not good?”

“I’m not saying that,” Douglas answered. “And my name is not Gordon. It’s a character I played 20 years ago.”

And yet politicians and religious leaders all over the world cited Gordon Gekko’s “greed is good” mantra in their condemnations of the behavior that led to the Global Financial Crisis and the Great Recession.

These oversimplifications were certainly well-intentioned exhortations of basically honest men. Neither Australian Prime Minister Kevin Rudd nor Cardinal Tarcisio Bertone was lying when they blamed a movie character for a catastrophic, 100-year market and economic meltdown.

They were trying to elicit a reaction, an emotional response that would help them consolidate power and/or influence.

Their statements probably fall outside what Harry Frankfurt described as “one of the most salient features of our culture” in his 2005 essay “On Bullshit.”

As Frankfurt explains:

What bullshit essentially misrepresents is neither the state of affairs to which it refers nor the beliefs of the speaker concerning that state of affairs. Those are what lies misrepresent, by virtue of being false. Since bullshit need not be false, it differs from lies in its misrepresentational intent. The bullshitter may not deceive us, or even intend to do so, either about the facts or about what he takes the facts to be. What he does necessarily attempt to deceive us about is his enterprise. His only indispensably distinctive characteristic is that in a certain way he misrepresents what he is up to.

What is he up to?

That, indeed, is the question.

It’s particularly relevant in our field, which is now driven by pernicious click-baiting and fear mongering.

Take The Unfortunate Rise Of The Misleading “Scary Chart” Comparisons Again, a May 29, 2017 post at Disciplined Investing that revisits The “scary chart” fallacy documented on February 16, 2014, by The Mathematical Investor.

Comparisons of current levels of the Dow Jones Industrial Average and the S&P 500 Index to their 1928-29 and 1987 levels are designed to elicit emotional – and perhaps irrational and costly – responses.

What constitutes “bullshit” are the ways purveyors have conditioned us to react to things like monthly jobs reports. Their ratings increase or decrease in rough proportion to our rising or falling fear and greed.

And there are other parties out there whose mission is to obfuscate, for reasons all of their own, though there’s no rational reason to doubt the veracity of data reported by government agencies.

Indeed, note that Candidate Trump consistently derided the Bureau of Labor Statistics’ unemployment rate.

Now, President Trump regularly touts that same metric as a sign he’s on the straight-and-narrow MAGA path.

The point is this: Most of the information we consume is noise.

We do independent financial research, framed by what we call the Dent Method.

Harry’s expertise is megatrends – the cycles that describe history across multiple disciplines, with an emphasis on demographics.

Our team of analysts help us understand smaller movements playing out on day-to-day, week-to-week, month-to-month, year-to-year, and decade-to-decade bases within the larger cycles Harry describes.

We know how to help you generate and preserve wealth within these mega-, macro-, and micro-trends.

Our mission is not specifically to entertain, although it helps if we can do that in furtherance of informing – or, in other words, providing a useful signal that cuts through the noise.

That’s ultimately what Rodney’s new service, the Dent Cornerstone Portfolio, is all about.

Rodney set out to solve our readers’ No. 1 problem: How do I start my portfolio, and how do I maintain it?

And he’s come up with an elegant solution that integrates long stock recommendations from Boom & Bust, Peak Income, Hidden Profits, and Cycle 9 Alert.

For most of us, the investing game need not be so dramatic. Rodney has devised a service that’s eminently prosaic and useful.

If we are to blur fiction and fact, our guiding light ought to be Crash Davis, a true hero brought to life by Kevin Costner in Bull Durham, another seminal late-1980s film about a different American pastime.

“You don’t need a quadraphonic Blaupunkt,” the veteran catcher admonishes his rookie pitcher Ebby Calvin “Nuke” LaLoosh, a “bonus baby” focused on the accoutrements of his new Porsche. “What you need is a curveball.”

It’s part of Davis’s mission to “mature” the kid, a thankless task that includes, in addition to expanding the flame-throwing right-hander’s repertoire beyond a fastball, lessons on shower shoes and fungus, the difference between groundballs (“it’s more democratic”) versus strikeouts (“they’re fascist”), and the value of clichés at the big-league level.

You’ve got to cover the basics.

The point is, ladies and gentleman, that boring, for lack of a better word, is good. Boring is right, boring works.

And, the way Crash Davis goes about explaining it, boring is beautiful.

David Dittman, Editorial Director of Dent Research

P.S. In the next few days, we’ll be sharing more information with you about the Dent Cornerstone Portfolio. Watch out for it.

The post “Boring Is Beautiful” Is the New “Greed Is Good” appeared first on Economy and Markets.

When Ugly Stocks Make For Great Investments

Unless you’ve been living under a rock, you know that retail stocks have been getting pounded in 2017.

Just in the last couple of days, the stocks of Michael Kors and Express, Inc. have fallen off a cliff. Meanwhile, Amazon.com recently hit $1,000 for the first time and is riding a strong uptrend.

The Amazonization of shopping has acted as a major headwind for large traditional retailers. Remember Blockbuster? Your kids sure don’t!

Mall REITS have been under assault, and big retailers like Macy’s and Dick’s Sporting Goods have seen their shares drop like rocks.

Same-store sales metrics are under pressure, inventory builds have led to greater discounting and hammered margins, so the financial outlook for old-school retail just isn’t that bright.

It’s fugly out there!

But sometimes ugly stocks make beautiful investments.

After all, most of these stocks aren’t going to zero… Consumers are still going to buy Under Armour sneakers and Ralph Lauren polo shirts. They just aren’t going to do it at Dick’s Sporting Goods or Macy’s.

Meanwhile, there are three things investors can do to take advantage of the coming bargains in the retail sector.

1. Don’t catch a falling knife. Most retail stocks are in sharp downtrends. Stocks often overreact in either direction and move much farther than the fundamentals suggest. What goes down can continue to go down longer and faster than is justified. You don’t have to like it, but it is what it is.

Patience here will pay off. While waiting for value investors to accumulate shares (such as up days where the volume is much higher than average), you can start to build your list of potential positions. Let the market come to you.

2. Avoid the big-box retailers and mall REITs. It’s very possible that the mall could go the way of the dodo bird. It’s a lot easier to sit in your underwear and, in a few clicks, buy what you need and have it delivered to your house. No need to deal with parking during the holidays either! Many of the mall REITS offer attractive dividend yields, but that could be a pure value trap. Sometimes stocks have high yields for a reason – and it’s not because business is good.

The problem with big-box retailers is that many of them have to scale back substantially in order to get sales per square foot to where it was a decade ago. We’re talking thousands of store closings and at a record pace. That’s going to be a messy process – possibly for years to come. It also makes earnings analysis tricky, as charges and other write-offs obscure the true earnings power of a company. Earnings quality can take a hit, too.

3. Follow the cash flow. Companies with solid cash flows while their businesses are under pressure, are worth a look on the long side. Many retailers got caught holding too much inventory and were forced to push too much product into the sales channel, causing receivables to spike. This has a negative impact on cash flow.

Before its stock imploded, Under Armour was the lowest-ranked stock in my large company earnings quality model. Just because it was ranked last doesn’t make Under Armour a bad company. Someone has to be ranked last!

Historically, companies near the bottom of the pile have been substantial underperformers.

Inventory levels and receivables were flashing ”red.” Cash flow was under pressure. But, now that Under Armour’s stock has been pounded, its ranking has moved to the middle of the pack. Still not great, but better than last!

What to watch for is cash flow deterioration starting to slow and eventually turning up. This can often happen before good news hits the stock. Once inventories get marked down and profit margins take a hit, they become easier hurdles to jump over in coming quarters.

Ralph Lauren has been in the news for walking away from its flagship store in New York City and getting stuck with a lease that runs in the hundreds of millions of dollars. You know business is bad when you’d rather pay $70,000 a day in rent to not make a sale.

Ralph Lauren’s inventory levels are the lowest in years, and the company is also converting sales to cash at the fastest pace in that timeframe. Earnings quality has started to tick up. The stock chart still looks terrible, so that underscores point #1 above.

It’s very possible that many of these retail stocks will bottom before the broader market breaks, making them interesting long positions with reasonable valuations while the rest of the market finally starts to roll over.

It could be the start of the ultimate contrarian investment play.

Good investing,

John Del Vecchio

Editor, Hidden Profits

The post When Ugly Stocks Make For Great Investments appeared first on Economy and Markets.

Why Grass is Getting Greener

When I read a draft of Rodney’s feature story for the June issue of Boom & Bust, I joked in our investment committee meeting that our portfolio recommendations for the month would be Nintendo and Cheetos.

You see, this month’s issue is about the need for weed. We’re taking stock of the winners and losers of the growing (pun intended) marijuana industry.

Among other things, Rodney points out that large-scale agribusiness hasn’t gotten into the industry yet. Because, legally, it’s still really messy at the federal level.

That leaves smaller farmers and amateurs to fill the void in our growing pot pie.

So, while investing in the legacy video game company or munchies-makers might prove to be perfectly reasonable investments and hit on the stereotypes of certain pot-smokers, I ended up going in a different direction.

It’s a recommendation that jives with the grassroots growth in weed and a broader theme that crosses state, and generational, lines – a high-profile supplier of home gardening products.

Stop snickering.

Backyards are being converted into miniature marijuana farms. Hydroponics and cheap energy can turn garages across America into experimental farms.

As Rodney details, demand for legal marijuana will continue to rise, which should keep prices high and encourage a steady influx of new suppliers to try their luck as legal drug lords.

All of that is interesting, but still, it’s not enough for me to justify buying the stock of a gardening company.

Thankfully, there’s a much bigger trend here: the marriage and family formation of the Millennials.

The largest cohort of the Millennials – born in the late 1980s and early 1990s – is now pushing 30. And believe it or not, they’re actually getting haircuts and real jobs… starting families and buying homes.

Not coincidentally, housing starts are also showing signs of life. They’re still at barely half their pre-crisis peak levels, but they’ve trended higher since 2012.

Longer term, the U.S. housing market terrifies me.

But until we get the housing crash that Harry’s forecast, I expect housing starts to continue to trend higher, and a larger percentage of those homes to be modest starter homes built for young Millennial families.

Younger homebuyers may not have the remodeling and improvement budgets of older and higher-income homeowners. But they do take the appearance of their homes seriously.

Landscaping and gardening (hey! I said stop snickering) are a big part of that. I see it every time a Millennial replaces an original homeowner in my Dallas neighborhood.

And we’ve found a company in that field we’re comfortable investing in, regardless of the story.

It’s wildly profitable and consistent.

Since 2009, it’s generated an average return on equity of nearly 30%. In the meltdown of 2008, it fell just $ 0.19 per share, and it sports a modest dividend yield.

So that’s why, in the June issue of Boom & Bust, we’re talking about why grass is getting greener in more ways than one. Click here to get in on the action.

Charles Sizemore

Portfolio Manager, Boom & Bust Investor

The post Why Grass is Getting Greener appeared first on Economy and Markets.

Co-Author of Art of the Deal Says Trump Will Resign, then Declare Victory

[image error]This is what I predicted the day after Trump’s election.

He has the impulse control of a grease fire. And he certainly can’t admit when he’s wrong, even though he changes his mind on one policy or view after the next.

There’s something disturbing about that. More disturbing than Richard Nixon’s paranoia that led to the Watergate scandal.

Andrew Pancholi, a close friend and author of The Market Timing Report, has a 45-year cycle that corresponds to the Watergate crisis in 1972.

The cycle rolls around again this year!

Trump is making an enemy out of the media. Yes, reporters, journalists, and all the other talking heads have their flaws, but they’re more objective than the President!

If there is any “fake news,” it’s coming more from him.

He fires anyone that may come against him, like Comey at the FBI…

That was not a smart move by any political calculation.

He has “Reagan-like” supply-side policies, not only for the U.S. and world economy, but even for China, that has excess capacity (supply) to last for more than 10 years.

His tax cut plans will only benefit the rich, business owners, and the corporate elite.

While I have no love lost for the man, many of my readers either support Trump or wish for his critics to give him a chance. But if this was any other man (or woman) proposing what Trump is, and doing what Trump has done, they’d get the same response from me: None of these policies are appropriate for the Economic Winter Season, which is characterized by deflation.

Since working with Bain & Company consulting Fortune 500 companies, I’ve told anyone who’d listen – businesses and individuals alike – that you need a different strategy for each season of the economy.

And if you follow Trump down his rabbit hole, you’ll find yourself in the middle of a snow storm with nothing but your sunglasses on!

His repeal and reform of Obamacare has been a disaster.

His tax cuts and de-regulations are looking questionable.

The Russian collusion issue looks worse every day.

And he’ll never pull off the 3% to 4% sustainable growth he’s promised – even if he cuts all taxes and regulations to zero. It’s simply demographically impossible.

So how’s he going to get out of this quagmire?!

I don’t think he can. At least not as President.

With growing calls for impeachment and increasing resistance from Congress, I think he’ll simply resign. Then he’ll dedicate his efforts to a “make America great again” media campaign instead of fighting a bureaucracy that is “more complicated than he thought.” And he’ll say this was his plan all along.

I’ve said this since last November: Leaders that shake up things are more likely to get shot. Just look at what happened to Kennedy and Lincoln.

I also said from the beginning that Trump would be more effective for the struggling everyday white working class as an unregulated, independent voice in the media. I don’t think he wanted to become President. I think he banked on losing!

Win he did, though, and now he’s complaining that he’s been more unfairly treated than any other president in U.S. history. He’s in a no-win position, and even his wife and son are unhappy with the life they now live.

So, I stand by my forecast – like it or not – that Trump won’t last his first year.

And his removal or resignation from the White House will be bad for the markets.

Be sure to keep reading your Economy & Market emails daily. As this situation, as well as the many others we’re watching closely, unfold, we’ll keep you updated and prepared for whatever happens.

Harry

Follow me on Twitter @harrydentjr

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A Healthy Economic Fear of China

There’s an old adage in finance concerning borrowing and lending: If you owe the bank $1 million, you have a problem. If you owe the bank $100 million, the bank has a problem.

It’s all about scale.

When it comes to countries and markets, there is no scale, and therefore no problem, like the Middle Kingdom.

China is the land of the “biggest.”

General Motors now sells more cars in China than it does in the States.

The country boasts more than 1.3 billion registered cell phones, the most of any nation, and basically one for every citizen.

Chinese domestic consumption is growing by double digits while consumers in the developed world keep a tight grip on their wallets. This trend has continued for a decade… but it might be changing.

Unfortunately, no one knows for sure because the Chinese are notorious for rosy projections and opaque results.

As the rest of the world convulsed during the financial crisis of 2008-09, China watched its GDP growth fall from 14.2% in 2007 to 9.2% in 2009. Something had to be done!

The Chinese government injected hundreds of billions of dollars into the economy, goosing economic growth back above 10%… for a year or so.

Eventually, even with more financial engineering, growth fell below 9%, then under 8%, and has now dipped below 7%.

To keep the factories open, China has become a posterchild for exploding debt.

Not national government debt, which stands at less than 50% of GDP, compared to the U.S. total of about 100%. In China, it’s all about non-financial debt, which exploded by 18% per year between 2010 and 2015, reaching 160% of GDP and certainly well beyond that today.

Through banks and local entities, the national government funnels loans to state-owned enterprises (SOEs), which are government-run businesses.

If a factory is an SOE, it must serve two masters – making a profit and satisfying political demands. When those two goals conflict, which happens when such a company should downsize (and fire workers) to be efficient, they often choose to be politically correct. This means borrowing money to operate since they’re bleeding cash.

This approach works as long as banks, at the direction of the government, keep funneling money to the losing entities. When the government grows weary of the charade, all bets are off.

Given recent statements to this effect from China’s President Xi Jinping, SOEs might lose their financial lifelines, which will lead to closing businesses and job losses.

This rotation away from bloated businesses will help the economy in the long run, but it will be painful in the short-term. And the pain won’t stay in China. It will ripple around the globe, washing up on foreign shores.

Recently Chinese futures for iron ore, coking coal (used in steel mills, among other places), and rebar got hammered (pun intended). It was interesting because official Chinese steel inventory sat below normal levels.

It could be a temporary dislocation in the markets, or it could be the beginning of a slide.

Around the same time, Moody’s downgraded Chinese debt from Aa3 to A1, noting higher debt levels and a softening economy.

Hmm.

Those who sell raw materials should be concerned, and not just those who sell to China.

When the biggest buyer in the market loses interest, all suppliers take a hit.

While the ebbs and flows in the iron and copper markets are well known, there’s another market that should be eyeing China with trepidation – oil.

Every week the world gets a glimpse at how much oil sits in inventory in Cushing, Oklahoma. This measure, along with some data points in Europe, provides insight on oil supplies.

But that’s only half the equation.

To estimate where the price of oil will go next, we need to know demand. And better yet, future demand. This is where things get murky.

Chinese oil purchases have been driving marginal demand for years. As more Chinese take to the road for the first time, this makes sense.

But the country has also been adding to its strategic petroleum reserve (SPR). The problem is, no one knows the size of the reserve or how much more the Chinese will store.

JPMorgan estimated that China added roughly 1.2 million barrels of oil per day to its SPR in the spring of 2016. But it doesn’t know for sure.

The Chinese report on their SPR, but their numbers seem a tad light.

Why would a nation almost four times the size of the U.S. have a reserve less than half the size of ours? Analysts think the Chinese reserve is closer to 600 million or 700 million barrels, just shy of the U.S. SPR capacity of 735 million.

No matter what the size, eventually the reserve will be full. Unless business and consumer energy consumption ramps up dramatically, which seems unlikely given slower GDP growth and potential cutbacks at SOEs, Chinese oil demand could decline.

If it happens soon, then the slowdown will coincide with OPEC’s attempt to prop up prices through continued production cuts. Falling production would be met with falling demand, thereby keeping the oil market in equilibrium at a time when U.S. inventories are near record highs.

And then there’s that pesky business of U.S. fracking companies ramping up production.

Let’s not lose sight of the fact that OPEC is a cartel, and is working with non-OPEC members to manipulate the markets. They need to drive up profits to help their busted budgets.

They should be very fearful of changing Chinese demand… and it couldn’t happen to a nicer bunch.

Rodney Johnson

Follow me on Twitter @RJHSDent

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Flags and the Fallen

I get annoyed with articles and reports that assume we’re stupid.

As if flashing “Sale!” signs and the smell of sunscreen somehow make us forgetful. They don’t.

We know that today is Memorial Day, the day we set aside to honor those who fell while serving our country.

It is a solemn idea that, because of its timing, we’ve combined with a seasonal celebration. Tacky commerce aside, there’s nothing wrong with that. In fact, the notion of remembrance and celebration, death and life, are already wrapped up in one package on Memorial Day – the U.S. flag.

Every day I read the morning papers. During the week, I do this at the kitchen counter. However, on the weekends I get a treat. I sit outside on my second-story porch to peruse the news and drink coffee, looking over the small park across the street and the water beyond. Two flagpoles stand in the park, one for the Stars and Stripes, the other for the state flag of Texas.

Today, both flags are at half-staff (not half-mast; that term applies to flags on boats)… but only until noon.

Flying flags at half-staff or half-mast to honor the dead goes back centuries. Some claim it allows the invisible flag of death to be at the top. Others think it might go back to ancient Greek and Roman times when staffs were broken in half to signal a significant death. Whatever the origin, it’s a custom we follow.

We honor significant individuals by station. Presidents, Vice Presidents, Supreme Court Justices, etc., are honored upon their death by flags at half-staff but for varying lengths of time. And then there are days every year that we fly the flags low, such as Peace Officers Memorial Day, 9/11, and National Pearl Harbor Remembrance Day.

But Memorial Day is different. According to flag code, we fly the Stars and Stripes at half-staff until noon and then raise it to the finial at the top of the pole for the remainder of the day. Exactly why is a bit of a mystery, but we get a clue from the original 1923 version of the flag code:

“On Memorial Day, May 30, the Flag is displayed at half-staff from sunrise until noon and at full staff from noon until sunset; for the Nation lives and the Flag is the symbol of a living nation.”

Anyone with a sense of history could take this sentence and spin it into a book.

Memorial Day grew out of honoring the dead of the Civil War. We honor those on both sides, as President Grant did when he presided over a memorial service at Arlington Cemetery where flowers were strewn across the graves of Union and Confederate soldiers. Not lost in ceremony is the fact that our nation survived.

That survival, and our subsequent growth, is a cause for joyful celebration. The cost exacted from us in our lost husbands, fathers, sons, and brothers cannot be recovered. But it was for a purpose: the life of the nation.

We get to drive where we want, eat what we want, buy what we want, and spend time with whomever we want.

I don’t think a single soldier gave his life so that I could save 50% on a mattress or get $3,000 off the price of a car during the last weekend in May. And no one put his life in jeopardy so that I could join millions of other Americans on the highway as the summer gets into full swing. They died defending my right to choose. For that I am grateful, as I believe we all are.

I will take a moment today, before noon, to consider that flag at half-staff in the little park across the street, and all the sacrifice that it represents. And then, as the afternoon wears on, I think I’ll celebrate the start of summer at my sister’s house with some barbeque and time in the pool.

Here’s to remembering our history and to a solemn, then joyful, Memorial Day.

Charles Sizemore

Porfolio Manager, Boom & Bust

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The Fed Is Full of It. The Yield Curve Is Not

Sometimes we get so caught up in what’s happened over the last few days, weeks, or months, we fail to see the bigger picture.

Perspective is key. Lose it, and you might as well give up on any long-term planning.

When we do take a longer view, we can avoid short-termism and make better investment decisions.

That requires serious discipline. But what if I told you there’s an easier way to appreciate the future of our economy, one that doesn’t include talking heads and iPhone news alerts?

There’s no perspective to be gained – on markets, investing, the economy, or anything, really – from your TV or your mobile device.

There is, however, a smart and simple way to see if the economy’s heating up or cooling down.

I’ll get to that in a minute…

First, let’s take a look at how stocks have performed over the last five years. Based on stock performance alone, you’d think our economy is firing on all cylinders, that maybe the Federal Reserve should be concerned, even, about an irrationally exuberant economy.

I mean, just look at the S&P 500 Index.

Pretty straight forward, right? I mean, we’re sitting close to all-time highs!

Stocks can be pushed higher because of various factors, among them low interest rates, positive investor sentiment, good corporate earnings, stock buybacks, and the overall economic outlook.

That last factor is historically the most important. And if you’re at all familiar with the way the Fed rolls, you know it has an outsized impact on “the economic outlook.”

Through action (artificially low interest rates, quantitative easing) or even just talk (speech after speech from governor after governor downplaying recent data, for example), the Fed has been able to influence the countless decisions that determine the state of the economy.

But here’s the thing: For the past eight or so years, stocks have only needed the belief that the Fed would step in and save the day. That’s how warped the relationship between the Fed and markets has become.

The Fed ended its QE program (bond buying with money created out of thin air) two-and-a-half years ago. It’s even raised the benchmark federal funds rate three times since December 2008, from zero to 1.0%.

But the Fed’s still cautious about moving rates too high, too fast, as an aggressive tightening cycle could stall growth entirely. Whether Fed officials admit it in their public remarks or not, recent economic suggests we could be teetering on a pullback.

Let’s step back again and take a look at where long-term Treasury rates have moved over the past five years.

This image strongly suggests that every time the Fed has moved to tighten policy, long-term rates have fallen.

That’s the precise opposite of what the Fed intended.

Unlike stocks, there’s no clear trend in long-term interest rates. The only thing we can take away from the chart above is that the Fed might have some credibility issues.

And now, back to that reliable indicator of the future health of our economy. Take a look at the chart below.

The Treasury yield curve (or the difference between long-, medium-, and short-term rates) can tell us a lot about the outlook for our economy.

A steepening yield curve tells us future growth is expected to be higher. Longer-term rates are much higher than shorter-term rates because inflation is expected to get hotter along with the economy.

Five years ago, long-term interest rates were just about where they are now, and short-term rates were nearly as low as the overnight federal funds rate (that is to say, at zero).

At the end of 2014, when the Fed ended QE, short-term rates didn’t move much. But the middle of the yield curve moved higher. Again, long-term yields are nearly the same today as they were in 2014.

Finally, the current yield curve looks much flatter. Short-term yields moved higher, mirroring the Fed’s rate hikes, and the middle of the curve has drifted higher. But long-term rates are about where they were five years ago!

That’s not encouraging. Markets don’t believe there’s much risk of inflation or economic growth.

In other words, the market doesn’t believe the Fed… ouch!

It seems all the shenanigans of QE and the artificial suppression of interest rates to create inflation and jobs since 2008 have been a waste.

(Well, the Fed did create a $4.5 trillion balance sheet in the process. With friends like these…)

The more the Fed tries to “normalize” interest rates, the more pressure it puts on the economy. If and when it reduces the $4.5 trillion mess it created, even more pressure will be applied.

And the evidence strongly suggests things aren’t improving. For a little more context, I’ve highlighted recent disappointing data in recent issues of Economy & Markets here and here.

The data can tell us a lot about what’s going on, but, ultimately, we have to connect the dots. We need to figure out whether trends are developing or if the data is “transitory”… that’s the term the Fed has thrown around lately, when the data hasn’t fit with its projections.

If you’re looking for an indicator that sheds light on the overall economic environment, don’t look at stock market trends.

And please – please – don’t look at Fed projections!

Just take a look at what the yield curve is doing. If it’s flattening, there’s a potential slowdown or maybe even a recession ahead. If it’s steepening, we can all breathe easier.

In any case, you can prepare for and profit from surprises in the financial markets – especially in the Treasury bond market – with Treasury Profits Accelerator.

Good investing,

Lance Gaitan

Editor, Treasury Profits Accelorator

The post The Fed Is Full of It. The Yield Curve Is Not appeared first on Economy and Markets.

The Country that Will Best Survive this Global Financial Crisis and Prosper in the Aftermath

[image error]I’m in Australia this week.

It’s a long flight and the airlines lost part of my luggage.

Hate the jetlag.

But LOVE the country.

The first place I always go in Sydney is the best upscale food court I’ve ever seen anywhere in the world at the Westfield mall downtown.

I’ve been coming to Australia to lecture since the early 1990s, even before my first breakthrough book, The Great Boom Ahead. I started speaking at TEC, a global network of small business CEOs (it’s now called Vistage).

It’s beautiful here. The interior is a giant desert while the rim boasts the Great Barrier Reef, one of the great natural wonders of the world (it’s even visible from space!).

Sydney is a paragon of civilized beauty (Cape Town comes in a close second).

Melbourne is the most culturally sophisticated.

Brisbane has the best year-round weather, with close access to the reef and the infamous Gold Coast.

Perth has great weather and is very modern and classy for being 2,000 miles from anything, kind of like Honolulu.

But the country has so much more going for it…

It has high levels of immigration, much from Asia.

That’s the secret to becoming one of the top six developed countries in the world, with larger Millennial generations than Baby Boomers. (The U.S.’s trajectory away from immigration could have disastrous results and East Asia and most of Europe are worse!)

In fact, Australia has strong demographic trends ahead, giving it an edge most developed countries have lost.

And it’s a law-abiding country.

I only jay-walked once in Sydney. I never did it again. Not because I got a ticket, but because the looks I got from everyone on the street made it clear: “We just don’t do that here!”

No drivers speed either. There are traffic cameras everywhere!

Its cities are all clean and modern, like in Canada.

It has endless beaches and a great climate, dry and sunny (mostly).

The people are fun and friendly, and they even like Americans! Most other countries view us as imperialistic and meddling megalomaniacs.

And to top it all off, there’s no tipping here!

If there was anywhere in the world that I’d rather be when the worst financial crisis hits, and the civil unrest rises to a crescendo… it would be Australia.

Its government has the lowest debt of any major developed country.

It has less income inequality than the U.S., while taxing luxury goods, like cars and cigarettes, highly.

They’re a socially liberal people that are fiscally responsible.

And my books have sold more per capita here than in the U.S., which tells me that these people are open to new, leading edge ideas. Greg Owen of Goko.com.au, who’s my promoter here and a dear friend, understands my research better than most other marketers I work.

It’s not just about me though. Many leading-edge speakers I know tell me they do better in Australia than in the U.S. or Europe because there’s a thirst for knowledge and innovation here second to none.

There are just two problems…

It’s housing is in a bubble (which they’ve vehemently denied until recently), so consumer debt is high.

And it’s dangerously dependent on its largest trading partner, China. When the Red Dragon crashes – and it will – Australia’s going to hurt! Once it gets through that, this may be the best developed country to invest in or retire if you can.

My advice: Look to Australia for profit opportunities in the years ahead!

Harry

Follow me on Twitter @harrydentjr

The post The Country that Will Best Survive this Global Financial Crisis and Prosper in the Aftermath appeared first on Economy and Markets.

Volatility Is Back, Baby!

Volatility – a.k.a. the VIX – and the super-charged “volatility ETFs” we trade in my Project V research service have been hot topics in the media this month.

Even before last Wednesday’s massive 46% spike in the VIX – the seventh-largest one-day spike ever for the index – “volatility” had become the subject du jour.

Not because volatility was high… or increasing… or spiking.

But because every financial pundit and his brother was writing about how low the VIX has been (before last Wednesday’s move, of course)…

How “quiet” the market was…

How “complacent” investors had become.

“The VIX is under 10 now, its lowest reading since December 2006,” read one piece.

Another commentary riffed off Franklin D. Roosevelt’s famous quote, twisting it to say: “The only thing we have to fear now is the lack of fear in the market today.”

Cute!

But for all the ink commentators have spilled on the topic, I have yet to read one piece that presciently warned of last Wednesday’s move (before the move).

And I have yet to read a single piece that tells investors exactly what they should do now… now that volatility is back.

Today, I hope to fill that void… to go beyond cute commentary on the VIX to give you my best actionable advice on what to do now.

After all, I’m a strategist, not a commentator, so strategic, actionable advice is what our premium subscribers pay me to give.

Here’s a peek at some of my best research on volatility booms and busts…

Ten Days After a VIX Spike

Most people’s instincts told them to sell stocks in the immediate aftermath of last week’s spike in the VIX.

The natural assumption is that a volatility spike like that, and corresponding stock market selloff, is just the beginning of more bad things to come.

But that’s typically wrong…

You see, contrary to the gut feel of most investors, stocks are more likely to rise in the 10 days following a large VIX spike.

And volatility is more likely to ease lower over those 10 days.

I ran a simple study to come to that conclusion.

I looked at historical instances of one-day VIX spikes greater than 25%, of which there are only 33 in the history of the index.

Ten days following those one-day spikes:

The S&P 500 was higher 55% of the time, gaining an average of 0.3%
The VIX was lower 72% of the time, losing an average of 6.2%

What’s more, a big drop in the VIX typically follows soon after a big spike.

Of all the historical instances of a VIX spike greater than 25%… 83% of the spikes were followed by a 10% or greater single-day drop… within the next 10 days.

Moral of the story is: you shouldn’t sell after a VIX spike… you should BUY!

That’s how I positioned the founding members of my Project V service, in the immediate aftermath of last Wednesday’s move.

So not only did we make a 10.4% profit in a single day, during the VIX spike… we also made 12.9% over the next three days, by positioning for higher stock prices and lower volatility.

It took a healthy dose of bravery to make those trades… but backed by the hard statistics of my research, it was the right thing to do. And we profited nicely from it.

Of course, unless you’re using a system like the one I share in Project V… you probably shouldn’t be trading volatility on such a short timeframe.

Still, you should know what last week’s massive VIX spike means to you.

In two words: don’t sell!

I extended the study I shared above, looking at the historical instances of VIX spikes greater than 25%.

Here’s what the S&P 500 has returned, on average, over the following three to 12 months…

Not so scary, eh?

Although I have one final point to make…

That is, averages tend to hide the outliers.

So, while positive stock markets returns tend to follow large VIX spikes, on average, that isn’t always the case.

In 2008, the VIX spiked 26.4% on June 6. Buying the S&P 500 following that move was quite costly, as you can see here:

Ouch!

Of course, those are the returns you’d get as a “buy-and-hold” investor. And we’re no fans of buy-and-hold, here at Dent Research.

Instead, we rely on time-tested, active trading systems… strategies that allow us to adapt to changing market conditions, benefitting from the markets booms and its busts.

Project V is no different. I specifically designed it to be nimble… and to take advantage of the lucrative profit opportunities in volatility booms and busts.

And my Project V market-timing model absolutely raked it in during the 2008 crash…

This service is currently only available to founding members, but we’ll be opening up to new readers later this summer. Stay tuned for more on this.

In the meantime, don’t be scared off by last week’s VIX spike. It’s more likely than not to be a one-day dust up… followed by positive stock market returns ahead.

To good profits,

Adam O’Dell

Editor, Project V

Follow me on Twitter @InvestWithAdam

The post Volatility Is Back, Baby! appeared first on Economy and Markets.

One Approach to High Healthcare Costs

In 2015, I thought my healthcare renewal statement was wrong.

The premium for my shrinking family of three (two adults and one child) was increasing by more than 30%, to $1,454 per month. My earnings place me out of the subsidy bracket, so these are real dollars out of our budget.

There were plenty of insurance companies to choose from. Shrinking availability was not a problem. It was just breathtakingly expensive.

Or so I thought.

In 2016, my premium jumped to $1,733 per month.

The galling part is that I had no control. I’d kept tabs for years. The insurance companies had never paid total reimbursements anywhere close to the premiums we’d paid, and our deductibles climbed even as our premiums shot higher.

This is not how insurance is supposed to work.

Insurance is a hedge against something unexpected happening.

The current system is glorified cost-sharing with a lot of middlemen.

With true insurance, I’d pay for small or ordinary medical costs like a broken arm or asthma treatments, and I’d pay for scheduled surgeries with savings or a payment plan. But big things, like car accidents or cancer, would be covered.

That sort of coverage isn’t possible today. Even if the proposed American Health Care Act allows it, I’m not sure how many insurance companies would offer such stripped down service.

I don’t claim to know how to fix the national problem.

Caring for everyone as we age will be expensive, but no one (including me) wants to ration care or tell doctors they simply earn too much compared to their peers in other countries.

But that doesn’t mean I sat still when I got my premium renewal notice last year.

I searched for alternatives… and I found them.

The Affordable Care Act includes a carve-out for health-sharing arrangements that existed before 2000. These organizations tend to have a religious component and work like mutual benefit societies from a bygone era.

I investigated several before choosing Christian Healthcare Ministries (CHM, www.chministries.org). There’s also Medi-Share and Samaritan Ministries, among others. Each one operates a bit differently, which is why I chose CHM. But they each have the same basic principles.

I contribute $150 each month per person, or $450. That’s $1,283 less than my cost would have been in the traditional market. It adds up to $15,396 per year.

The organizations ask that you affirm your faith, and that you live a responsible life. It’s not that you need to live a life of austerity or denial. You can still have one too many at the local barbeque from time to time, or ski the black diamond runs.

What you can’t do is expect your fellow members to pay for things outside the bounds. If you have an accident while driving under the influence, it’s not covered. If you get addicted to illegal drugs, it’s not covered.

In short, these organizations give you the opportunity to exchange responsible behavior for lower-cost healthcare.

This is not insurance. It’s health cost sharing. It sounds like semantics, but once you get into the details the difference becomes clear. Even though CHM mailed me a card, there’s nothing to show a doctor or hospital.

When we visit the doctor, we say one thing: “Self-insured.”

Last fall, while away at college, my daughter went to the hospital. She was short of breath due to an allergic reaction. She called from the waiting room. I told her to do everything necessary to get the care she needed, and, when it came time to settle up, to tell them she’s self-insured and to give them my contact information.

She left without paying a nickel, and then I waited for the bill.

Five weeks later, I received her statement. The hospital had reduced her bill by 71%.

The CHM gold plan we have covers costs outside of tests and transportation, with a $500 deductible per condition. We pay for our routine doctor visits.

The plan includes a prescription drug benefit, but I’ve found that GoodRx, a free app that anyone can use, is better. I recently filled a prescription that would have been $39, but GoodRx directed me to a large chain grocery store where my coupon provided by them brought the cost down to $8.

Clearly this approach won’t work for everyone. I’d imagine there are pitfalls to these programs that will come up as time goes on. But, so far, it seems to be working just like insurance used to work.

And the basic tenets seem solid enough to help all of us achieve lower costs.

As a consumer, I’m asked to be responsible for my health, to do my part to keep my costs down, and I ask for the best price a vendor has to offer when services are rendered. In return, my health cost sharing premium stays in the reasonable range. That seems like a fair trade.

I’ve had two friends sign up for similar programs in the past six months, as they ran into the same astronomical costs that I did. I imagine these organizations will attract many more users in the months and years ahead as costs continue marching higher.

If you end up looking into these programs for yourself, check them all out to find the best fit. And if CHM ends up the top choice, tell them I mentioned it… because they also have a referral program.

Rodney Johnson

Follow me on Twitter @RJHSDent

P.S. I mentioned last week the special Q-and-A that Lance was holding about his Treasury Profits Accelerator service. If you missed that – and his soon-to-end two-for-one subscription offer – check it out here.

The post One Approach to High Healthcare Costs appeared first on Economy and Markets.