Harry S. Dent Jr.'s Blog, page 94

Tell Us How You Really Feel…

In my last Economy & Markets article, I discussed how investors are making potentially dangerous assumptions about policies that may or may not have an impact on the economy and the stock market. For example, we already spend hundreds of billions of dollars on infrastructure. At best, Trump’s plan is incremental and not transformational.

This week I’m going to take a look at the impact this has had on investor sentiment. It’s no secret that the market has taken off like a rocket ship since the election. The move in small cap stocks in particular has been the strongest in nearly three decades.

But, now that the move has happened, is the market ahead of itself?

When looking at both individual investors and investment professionals, the change in market sentiment has been drastic.

Investor have poured over $97.6 billion into exchange-traded funds since the election. This is a record amount of inflows. For comparison, the inflows for all of 2015 was $61.5 billion.

The recent rush to buy into the market and the magnitude of the inflows serve as a contrary indicator. What I mean is: don’t get ahead of yourself.

When the great bull market of 1982 started, there was persistent buying of equities. Baby boomers were in their peak earnings years. They had bonuses, stock options, 401(k)s, and defined-benefit plans. But that demographic trend is now over.

I’m highly skeptical that the recent pouring into stock funds is anything more than speculation.

Again, it goes back to those policies people seem to be so misguided about. The rude awakening may occur around the 100th day of the new administration, when the realization sets in that Washington, DC, is not a business but rather a bureaucracy.

It’s tough to get things done in a bureaucracy. There is no magic wand or all-powerful CEO to change directions on a whim.

As my elementary school teacher used to say: “three trees make a row.” So, the buying that has occurred over the past five or six weeks will need to go on for much longer before we can consider it a full-on trend in this bull market.

Since everyone is virtually maxed out on stocks right now, this is all but impossible to sustain.

Individual investors now have their highest allocation to stocks all year at 66.4% (based on the American Association of Individual Investors’ survey). To raise the capital to buy stocks, individuals have used up cash and dumped bonds.

Historically, individual investors are horrible asset allocators. Their largest equity position ever was just before the Internet Bubble popped and the highest cash position was at the market lows in March 2009. The recent fervor to own equities should be met with caution.

Then you have the professionals.

Just prior to the election, professional investors were allocating about 58% to stocks. Professionals are now almost fully invested with a 96% allocation to stocks. Anything above 73% has been met with meager returns over the past few decades. In fact, the annualized return is approximately 0.25%. After many years, you finally can earn higher interest in your bank account than taking that sort of market risk!

So, the question is: who is left to buy?

The answer is “pretty much no one.”

Take that as your cue to act as a contrarian and reduce risk or tighten your stops on your big market wins over the last six weeks.

And you should know that there’s a pretty incredible option for you right now to join our most elite level of investing acumen and profitability. Do yourself a favor and check out The Network right here.

Happy investing,

 

 

 

 

John Del Vecchio

Editor of Forensic Investor

The post Tell Us How You Really Feel… appeared first on Economy and Markets.

How to Make 9.4% Yield in Today’s Market

Earlier this month, I wrote that tax-free closed-end bond funds were ripe for the picking, and this is still the case today. In my income-driven newsletter Peak Income, we currently have three open recommendations yielding a fat, tax-free 6%.

But, as nice as tax-free income can be, the world of closed-end funds (CEFs) is much wider. There are CEFs that invest in taxable bonds… stocks… REITs… commodities… There are even CEFs that do nothing but invest in other CEFs.

So today, we’re going to take a look at some of these different fund types, and examine their pricing after the post-Trump bond yield spike. I covered muni funds in my last article, so let’s start with their taxable cousins.

That 90c Dollar: Investment-Grade Taxable Bond Funds

The taxable bond fund space tends to be one of the largest and most actively traded, and there are good reasons for that. Because CEFs juice their returns with borrowed money, it makes sense to use lower-volatility investments like bonds. When the investments in question don’t fluctuate in value all that much, you can more safely add juice to the portfolio via leverage.

Bonds are also fairly illiquid and don’t trade all that regularly. So, by putting a portfolio of bonds into a CEF, you effectively convert illiquid assets into something that’s a lot easier and cheaper to buy and sell.

Taxable bond ETFs generally trade at a slight discount to NAV, but at times those discounts can get extremely wide, which is generally the best time to buy them. This is the time when you can get that elusive 90-cent dollar.

Right now, you can take your pick of investment-grade bond CEFs trading at discounts to NAV of 8%-10%, or even more, and sporting dividend yields well in excess of 6%.

In this bond market, that’s not half bad.

Fed Proof: Loan Funds

You’re probably aware of how the mortgage market works. The bank that made your mortgage loan probably didn’t hang onto it. It’s far more likely that they sold it to Fannie Mae or to some other institutional investor who, in turn, lumped it together with thousands of other loans and turned it into an investment product.

Bank loans often work the same way. Corporate loans are less standardized and harder to package as investments than mortgages, but it can be done. And there are CEFs that specialize in this field. I recommended one to my Peak Income readers this month and another to my Boom & Bust readers, and both are performing even better than expected!

And why might that be? I’ll give you a one-word answer: the Fed!

Bank loans generally have floating rates, so they’re considered to be “Fed proof.” An aggressive Fed means a higher payout, so these funds have avoided the beating that most of the rest of the income world has taken.

All the same, there are still bargains out there. You can put together a portfolio of loan CEFs trading at modest discounts to NAV and yielding 6% or more. Again, that’s not bad in this market.

Fantastic Bargains: Equity Funds

There are also plenty of stock CEFs to choose from, though these can look a lot different than the traditional stock mutual funds you’re accustomed to. Because CEFs tend to be income focused – and because they employ leverage – equity CEFs are inclined to concentrate in utilities, telecom and other low-volatility, high-yield sectors. But there are also specialty equity CEFs that focus on specific corners of the market, and that’s what get me excited.

Right now, Peak Income has two open recommendations in REIT funds and two more in MLP funds.

Real estate stocks have gotten absolutely hammered since the presidential election. REITs have come to be seen as a bond substitute, so rising bond yields (and falling bond prices) means rising REIT yields (and falling REIT prices). And this has created some fantastic bargains for us.

As an example, one of our REIT CEFs is trading at a 12% discount to its NAV… and the NAV itself has been depressed by the selloff in REITs. So, we have a fund trading at a deep discount to an already deeply discounted sector… and it’s yielding over 8% to boot.

MLP funds are also looking good right now, particularly because of the tax issues that can come with owning individual MLPs. Rather than the standard brokerage account 1099, unitholders of MLPs get a separate K1 tax form for every MLP they own… plus they can’t hold the MLPs in an IRA account without risking major tax complications.

But owning MLPs via a CEF eliminates these problems and allows for stress-free IRA ownership. Because of this, MLP CEFs often trade at a premium to NAV rather than the discount that you see in most of the rest of the CEF world. Yet today, many MLP CEFs actually trade at deep discounts, as investors dumped the sector a year ago and have yet to fully return.

To give a perfect example, one of my favorites MLPs – which happens to be a Peak Income holding – is currently trading at a 12% discount to NAV and is yielding 9.4%. And if that doesn’t pique your interest, then I’ll leave you with this to think on…

Do you expect the stock market, as elevated as it is, to return anything close to these numbers long-term?

I didn’t think so.

 

 

 

Charles

P.S. Access to my Peak Income newsletter will be made available early next year, but you don’t have to wait until then to start putting cold, hard cash in your pocket every month. We’ve just opened up a limited number of spots to the Network, our highest level of membership.

When you sign up, you’ll receive instant access to everything that Dent offers, including services not-yet available to the public, and ones that are so top-secret, we haven’t even revealed their name… Space is limited, though, so sign up now before you’re too late.

The post How to Make 9.4% Yield in Today’s Market appeared first on Economy and Markets.

Bringing Home the Bucks Won’t Solve Many Problems

Apple has a lot of cash.

At last count, the company’s horde had grown to a record $237 billion. But, as we all know, almost half of that supply is stuck overseas. If Apple, or any other company that paid lower taxes (or no taxes at all) in a foreign jurisdiction brings the money home, they’ll have to pay Uncle Sam up to 40%.

Ouch!

President Obama recommended charging companies a lower tax rate of 19% on repatriated profits, but President-Elect Trump has floated lower numbers – zero to 5%. He wants to tie taxes on corporate profits from overseas to infrastructure projects at home, providing some budget cover for his campaign promises.

Both approaches try to accomplish the same goal: provide companies a way to bring home the idle funds sitting in foreign accounts so that they can put the money to use domestically.

The problem is companies have already deployed a lot of that money. On top of that, they aren’t spending all the bucks they hold in the U.S., anyway.

In 2013, Apple (Nasdaq: AAPL) issued $17 billion of bonds. By any reading of its balance sheet, the company didn’t need the money. It had more than $100 billion in cash and was creating $20 billion worth of free cash every quarter. But a big chunk of that money passed through Ireland so it wasn’t taxed (which is a big can of worms we can open another time).

Instead of bringing the cash back to the U.S. and paying Uncle Sam, Apple kept the money offshore and issued bonds domestically to pay dividends and buy back its stock. The company owes the U.S. taxes on the interest it earns overseas, but it writes off the interest it pays on outstanding bonds.

In the world of accounting, to the extent the company issued bonds, the foreign cash holdings were a wash.

In the big picture, this must have worked out well for Apple, because the company did the same thing again in this year, as did IBM (NYSE: IBM), which also holds billions of dollars overseas.

Microsoft (Nasdaq: MSFT), which has more than $100 billion outside the U.S., issued bonds to fund its purchase of LinkedIn.

Alphabet (Nasdaq: GOOGL), formerly Google, is also a member of the “they-can’t-need-the-money-but-issued-bonds-anyway” club.

Presumably, when these companies finally bring home buckets of cash they’ll immediately pay down their outstanding debt, pairing off their assets and liabilities.

There’s no question that companies like Apple, Microsoft, IBM, Alphabet, and others that hold large amounts of cash overseas have more foreign funds than domestic bonds outstanding.

But the point is that those funds aren’t as idle as they might appear. So, when they finally make it back stateside, chances are they won’t generate a flurry of new corporate investments.

Even if the funds were totally unencumbered, we shouldn’t expect companies to deploy them if they bring them home. While U.S. companies hold $2.1 trillion overseas, they also hold $1.92 trillion domestically. The foreign funds might be hard to spend, but the local cash doesn’t have strings attached.

If there are so many good uses of cash out there, just waiting to be funded if only we could get foreign profits home without an onerous tax, then why is so much money sitting in corporate coffers here at home?

The answer is obvious, even if it’s not a happy message.

Corporate leaders don’t see enough opportunity for sales to warrant further investments. They know that low growth, the hallmark of the economic recovery since 2009, will be with us for several more years. Their cost-conscious customers reiterate that fact every day with their purchasing choices.

Another testament to the low-growth story is what many companies actually do with their excess cash and bond proceeds – buy back their own stock. When your best use of cash is to purchase your company shares on the open market, it must mean the corporate landscape is devoid of good investment opportunities.

None of this should be news to investors, who have something of the same problem. We all want our money to work for us, and yet we have $2.7 trillion sitting in money market funds that pay little, if any, interest.

And banks are no exception. Financial institutions hold $2.2 trillion in excess reserves at the Federal Reserve. These are funds that could be lent as new credit, if only they could find worthy borrowers and projects.

Across the board, our economy has a lot more cash available than it currently needs, which in part explains low yields and high stock prices. Adding more monetary fuel won’t make the economic fire burn any hotter.

So, don’t hold your breath waiting for a burst of activity based on a flood of money coming home. When all is said and done, instead of a flood it could be a stream of water that’s already passed under the bridge.

In the big picture, this must have worked out well for Apple, because the company did the same thing again in this year, as did IBM (NYSE: IBM), which also holds billions of dollars overseas.

Microsoft (Nasdaq: MSFT), which has more than $100 billion outside the U.S., issued bonds to fund its purchase of LinkedIn.

Alphabet (Nasdaq: GOOGL), formerly Google, is also a member of the “they-can’t-need-the-money-but-issued-bonds-anyway” club.

Presumably, when these companies finally bring home buckets of cash they’ll immediately pay down their outstanding debt, pairing off their assets and liabilities.

There’s no question that companies like Apple, Microsoft, IBM, Alphabet, and others that hold large amounts of cash overseas have more foreign funds than domestic bonds outstanding.

But the point is that those funds aren’t as idle as they might appear. So, when they finally make it back stateside, chances are they won’t generate a flurry of new corporate investments.

Even if the funds were totally unencumbered, we shouldn’t expect companies to deploy them if they bring them home. While U.S. companies hold $2.1 trillion overseas, they also hold $1.92 trillion domestically. The foreign funds might be hard to spend, but the local cash doesn’t have strings attached.

If there are so many good uses of cash out there, just waiting to be funded if only we could get foreign profits home without an onerous tax, then why is so much money sitting in corporate coffers here at home?

The answer is obvious, even if it’s not a happy message.

Corporate leaders don’t see enough opportunity for sales to warrant further investments. They know that low growth, the hallmark of the economic recovery since 2009, will be with us for several more years. Their cost-conscious customers reiterate that fact every day with their purchasing choices.

Another testament to the low-growth story is what many companies actually do with their excess cash and bond proceeds – buy back their own stock. When your best use of cash is to purchase your company shares on the open market, it must mean the corporate landscape is devoid of good investment opportunities.

None of this should be news to investors, who have something of the same problem. We all want our money to work for us, and yet we have $2.7 trillion sitting in money market funds that pay little, if any, interest.

And banks are no exception. Financial institutions hold $2.2 trillion in excess reserves at the Federal Reserve. These are funds that could be lent as new credit, if only they could find worthy borrowers and projects.

Across the board, our economy has a lot more cash available than it currently needs, which in part explains low yields and high stock prices. Adding more monetary fuel won’t make the economic fire burn any hotter.

So, don’t hold your breath waiting for a burst of activity based on a flood of money coming home. When all is said and done, instead of a flood it could be a stream of water that’s already passed under the bridge.

 

 

 

 

Rodney

Follow me on Twitter @RJHSDent

The post Bringing Home the Bucks Won’t Solve Many Problems appeared first on Economy and Markets.

The Fed Hiked Rate! So What?

As expected the Fed hiked the federal funds rate in their policy announcement following yesterday’s meeting. This was expected – I mentioned the near certainty back on November 21 – and already priced-in throughout the market. But, of course, you’ll probably see plenty of overreaction and beard-scratching pontification.

Ignore all that.

They hiked rates by a quarter of one point to the overnight federal funds rate of 0.50%-0.75%. They also hiked another key rate – the discount rate, which is the rate the Fed charges to commercial banks to borrow – by a quarter point.

Since November, when I brought this up, little has changed. There were no big surprises from the few important economic reports I mentioned. The only real surprise to me – and to a lot of folks – has been the endless rise in the stock market.

The Dow is near 20,000 and the S&P 500 is near 2,300, both record highs. Even though higher rates usually put a damper on stock prices, the market actually moved higher after the Fed announcement.

And that’s despite the rise in interest rates over the past couple months!

Trump hasn’t even been sworn in to office and yet, the markets are acting like he’s actually done something!

Markets are reacting because they feel he will loosen regulations and add fiscal stimulus, like infrastructure projects… at some point in the future.

Ahead of yesterday’s meeting there was some very important economic data released. The bad news was that November retail sales disappointed, only rising 0.2% on the month with autos and gas excluded. The market was expecting sales to be up 0.3%.

On the inflation front, the November Producer Price Index moved sharply higher, from up 1.6% on the year last month to up 1.8% year over year. Producer price movement tends to precede consumer price movement which is what the Fed is most concerned with.

So, the retail sales that drive inflation were a slight disappointment while wholesale inflation moved higher and in agreement with the Fed rate hike.

Following last December’s rate hike, the Fed estimated they would hike four times this year. We all know what happened with that!

The Feds estimate for 2017 changed to three rate hikes from two just last September.

The stock market reacted with a 10% sell-off early this year because of the Fed’s action and estimates for future hikes. If we see reason for another hike anytime soon, we will likely see an even bigger sell-off than we did earlier this year!

Of course, Harry has been predicting this for some time now.

The bond markets have correctly priced in today’s rate hike but what does the market think about three future rate hikes? The federal funds futures market has at least two rate hikes fully priced in already (August and December of 2017)!

The Fed discussed a strengthening labor market, a moderate increase in consumer spending, and increasing inflation as reasons for yesterday’s rate hike. They did note that business investment remains low.

Now that opinion can and will change as time goes on and as we get updated economic data and a better feel for what the new administration will actually accomplish down the road.

So what can you do to prepare for rising rates and a falling stock market?

I can’t think of any better approach than joining the Network, our highest level of investment acumen and profit opportunity. It includes access to nine different proven investment strategies. You can learn all about the Network right here.

 

 

 

 

Lance

The post The Fed Hiked Rate! So What? appeared first on Economy and Markets.

This Blow-Off Trump Rally Looks Real (Damn It!)

Between late 2014 and November 2016, the markets went nowhere. They made no more than a few, very minor, new highs. It looked like a classic head-and-shoulders, rounded-top pattern, with a break of 1,800 sounding the death knell.

All of my research pointed to signs that the end was near. The Dow was set to shed thousands of points in short order.

How much has changed since November 8…

That rounded-top pattern now looks to be a long 4th wave correction that’s moving into a classic final 5th wave “blow-off” pattern.

The market has flipped from seeing Trump as an impulsive wrecking ball to some kind of Messiah, and it’s doing so on high volume since the election. It’s totally buying his promise to grow the economy 3% to 4% sustainably again.

The problem is that this is demographically impossible… Period!

Just ask Japan, which has infused four times the QE relative to its GDP since 1997. Despite that, it has grown on average 0% in GDP, inflation and productivity.

That’s because aging economies cannot grow as fast as younger ones!

And according to my research, the U.S. population will only grow 0.27% over the next 50 years.

There will be near-zero workforce growth after several years of mildly negative growth. We have to realize that, while QE has allowed us to re-employ the people laid off in 2008-2009, we’ll soon revert back to growing very slowly now that we are at or very near full employment again.

Productivity has dropped to zero as well. Older people don’t get more productive as they age. They get less productive (I’ll talk more about this in the January Leading Edge.)

Despite all of that, the markets continue to go up.

So, on Monday I put my cap in my hands and wrote a Mea Culpa to my loyal, paid subscribers. Today, I send you the same message…

No matter how irrational this market is, I admit I’ve gotten the timing wrong.

The markets have defied all of my research, and all of the indicators I follow closely. They’ve even defied dozens of other indicators that have proved accurate before, that I looked to when it became clear that my tools were failing.

The big question is, how high does this go?

At this point, I can only offer a guess. This market is completely unpredictable and irrational. I recently just saw a sentiment indicator for Wall Street bullishness/bearishness that suggests stocks could go up as much as 20%.

My best guess is that this rally peaks somewhere between late February and early March or into mid-May, at the latest. The Dow could go as high as 21,500 and the S&P 500 as high as 2,500.

I did a telephonic interview on CNBC Fast Money last week, explaining my outlook on the market now. You can listen to it here. I still believe the markets are due for a massive correction. Nothing has changed on that front. Where I’ve failed is on timing. And for that, I apologize.

But that’s why we operate our business the way we do. We knew, from the outset, that timing markets is challenging. Seeing things from 10,000 feet is one thing. Putting your money to work on the ground is an entirely different thing, and that’s exactly why we’ve built our team the way we have. With Adam, Charles, Ben, Lance and John you’ve got strategies and expertise that help you profit from the current trends, regardless of market direction.

Even though my timing has been wrong on this market, our Boom & Bust model portfolio is doing great. We’re currently sitting on 10.51% for the year, and one of our recommendations returned was 95.42%, thanks to Charles.

John’s Hidden Profits model portfolio, which has only been active for three months, is already up 6.34%.

Adam’s Cycle 9 Alert gave subscribers the opportunity to bank a triple bagger this year – 205.91%!

And Lance’s Treasury Profit Alert subscribers are sitting on open gains of 169% so far this year!

Of course, the market crash is only one of my forecasts. And it’s the only one that hasn’t played out exactly as I’ve said (mostly because of Central Bank influences I had no way of predicting).

Gold has done exactly what I said it would. It peaked shortly after my sell signal in late April 2011 and crashed after breaking major support at $1,525. It rallied to near $1,400, as I predicted it would, in late 2015 and has recently fallen $200 towards my target of $700 in the next year or so.

Oil continues to show weakness, as I said it would, and only bounces when producers agree to cheat and cut back production, as they did recently.

Commodities are still stuck in the mud with only modest rebounds after being down 70% from the 2008 top.

The dollar thus far appears to be doing exactly what I said it as it looks poised to break out of a two-year trading range above 101 and head up towards 120. Such a rise will only weaken gold, oil and commodities further.

Japan hasn’t been able to rebound, just as I forecast.

Just as I warned, Europe hasn’t rebounded like so many hoped it would.

And the geopolitical environment continues to worsen, exactly in line with my cycles.

Most important, Treasury-bond rates have done exactly what I said they would do and spike up towards 3.0% or a bit higher. We’re already getting close to that level and that was my most controversial forecast.

So what now?

For starters, I’ll keep working on refining my research and indicators until I’ve found a formula that works in this manipulated, totally irrational market. And my team – Rodney, Lance, Adam, Charles, John and Ben – will continue finding ways for you to profit on the present trends (regardless of my overall market outlook).

 

 

 

 

Harry

Follow me on Twitter @HarryDentjr

The post This Blow-Off Trump Rally Looks Real (Damn It!) appeared first on Economy and Markets.

Buffett’s Greatest Strength is Discipline, Not Genius

Cliff Asness and Warren Buffett couldn’t be more different.

Buffett buys companies. Asness trades stocks.

Buffett is a “value” investor. Asness runs a “quant” shop, AQR Capital Management.

Buffett is known for his unassuming, down-home demeanor.

Meanwhile, Asness has rubbed more than a few people the wrong way with his uber-academic and ego-oozing personality. (He once told a female Bloomberg TV host, “You’re giving me that look that I get when I talk to women about quant stuff.” Ouch! Bad move, Cliff!)

I’m convinced, however, that both of these gentlemen, despite their differences, agree with two of my favorite pieces of investment wisdom:

Ignore the news.

And…

Stick to your game plan.

Like much of the investment wisdom I’ve picked up over the years, I learned these gems by observing what most investors do poorly.

Let’s take the case of obsessive news-watching first. I actually touched on this topic last week with my Cycle 9 Alert readers who were wondering how a couple of big news stories would affect our positions (Hint: They don’t).

Most go-it-alone investors read or watch the news… then run to their trading screens to punch in their orders. They react to whatever’s in the news cycle du jour, aiming to reduce risk when headlines are negative, vowing to not miss out on the next Google when an “undiscovered” company is touted… and so on.

But this in an awful way to invest.

The financial media exists to entertain and sell advertising. It’s not in the business of forecasting market moves or managing money. So most of the analysis you read is backward looking… anecdotal… or completely worthless blather, just filling time until the next commercial break.

Simply put…

Warren Buffett doesn’t read the news.

Cliff Asness doesn’t read the news.

And you shouldn’t, either!

I mean… I’m sure both Buffett and Asness do read the news. But they sure as anything don’t react to it!

Warren Buffett buys companies for the long haul, so he’s un-swayed by daily headlines and short-term price fluctuations.

Cliff Asness is also not influenced by the daily drivel in financial media. He runs systematic strategies – ones that have proven themselves to be profitable regardless of what’s going on in the news cycle.

You see, systematic strategies – like my own Cycle 9 Alert and recently-created Project V – can be examined with statistical rigor. This is an invaluable tool because the strategy’s performance characteristics can, essentially, take into account every unpredictable, volatility-stirring event you can imagine: geopolitical flare-ups, disappointing earnings reports, corporate scandals, surprise election results, etc.

You just can’t predict those sorts of things yourself. And by the time the story hits the papers, it’s already too late to make a move.

So any investment strategy worth its salt must be able to “absorb” the noisy impact of the news cycle, rather than react to it. The goal is to develop a systematic investment strategy that can achieve long-term profitability… despite news-cycle surprises.

But that’s only half the battle.

Once you’ve chosen your investment strategy – whether it’s Buffett’s, Asness’, mine, or your own – you have to stick to it!

This is a great piece of investment wisdom I’ve learned to live by. And interestingly, Cliff Asness commented on the value of having an undying discipline to your investment strategy.

During a Bloomberg TV interview (this one sans sexist remarks), he said:

“I used to think being great at investing long-term was about genius. Genius is still good, but more and more I think it’s about doing something reasonable, something that makes sense, and then sticking to it with incredible fortitude through the tough times.”

That’s a profound statement, and an especially poignant one coming from the mouth of a self-identifying Brainiac.

Asness continued the interview by giving a hat tip to Warren Buffett’s undying discipline to his strategy, saying:

“What’s beyond human is that he stuck with it for 35 years and rarely, if ever, really retreated from it.”

Clearly, Buffett’s superhuman ability to show fortitude and discipline – particularly during tough times – paid him back in spades.

And that’s a lesson every investor would do well to learn!

Of course, that doesn’t mean you have to be a go-it-alone investor. You can follow my easy-to-implement Cycle 9 Alert strategy, where I tell you exactly what to buy, when to buy it… and, of course, when to sell. I supply the strategy… all you have to do is follow it with discipline.

 

 

 

 

Adam

Follow me on Twitter @InvestWithAdam

The post Buffett’s Greatest Strength is Discipline, Not Genius appeared first on Economy and Markets.

Trump: You’re Fired

The President-elect just fired a member of his transition team for tweeting fake news and the Internet is in an uproar.

Yes, the King of Social Media just got real about wielding this powerful tool, and wants to send a message that he won’t tolerate funny business on social media.

But isn’t this the pot calling the kettle black?

During the election, Donald Trump essentially re-invented social media, using it as a strong, effective tool to spark controversy and bring attention to the shortfalls of his opponents. He’s continued the trend since winning the election.

Then there’s Russia. What exactly was the fake news that the country got out there that supposedly influenced the election? No one knows for sure, except maybe the CIA, but good luck getting a straight answer out of a clandestine organization.

No matter what side of the aisle you stand on or lean toward, one thing is clear in the post-mortem of Presidential Election 2016: Social media’s use in politics is here to stay.

Some pundits called 2012 the “Twitter Election,” because of how Obama used the 140-character space limit to help win the White House again. If it wasn’t, 2016 definitely was.

Heads of state, both future and present, corporations, marketing firms, journalists – just about everyone! – has their foot in the game to get a (hopefully real) message out.

But because anyone with an Internet connection has access to worldwide platforms like Twitter, Facebook and Instagram, in an era of on-demand information, social media channels can quickly spread misinformation (as we’ve seen recently) as fast as they share legitimate info…

It all really boils down to new technologies completely overrunning the old system of checks and balances. Publishing widespread information once had massive barriers to entry, with three key components…

Distribution – Owning a TV network or newspaper
Application – A 30-minute TV show or newspaper column space with ads
Content – Production and validation of material

Now, anyone with a smartphone can essentially create their own media company!

Facebook came under heavy fire recently for spreading “misinformation and false truths” during the election due to their newsfeed algorithm. This capability aggregates and displays only news that a user is interested in through regional (where they live) and preference (what they like) screening.

Bottom line: You get what you want from sources that may or may not be held to a higher standard of impartiality. And if you keep seeing what you already like, you’re more likely to believe.

As you can imagine, this practice throws fuel on a raging bonfire of Internet noise, but only because it’s what the American populace is demanding.

Still, you must protect yourself, be it from fake news about politics to rogue information that might affect your portfolio…

It’s what I did about five years ago when I created my Vox Intel Filter, which is at the heart of my MarketVOX trading service.

Message boards, blogs, chat rooms. Those were the old places where faulty info mainly spread on the Internet. As a self-taught trader, I sometimes fell victim. Then, it clicked.

With my background in the Marines as a Command and Control Systems Officer, what if I created a system for intelligence-gathering about the markets like I was already using for the military?

Vox is Latin for “voice,” and that’s exactly what my system provides: the unheard voice of the market. The Vox Intel Filter aggregates and screens millions of online messages per day related to over 7,000 U.S. stocks.

It looks at all media content sources, and impartially screens the data for time-tested, accurate indicators that forecast stock price action.

Unless you have a team of statisticians to back up a large bankroll, I recommend you check it out.

Just like a government intelligence analyst, it builds indicator profiles on companies based upon shifts in user reputation, user manipulation, message volume, and message sentiment.

If a major shift occurs that has previously forecasted significant price action in a stock, the system generates an alert for action.

Since this strategy is data-driven, it has no emotional ties to trades, ultimately protecting your portfolio from rogue information, or misinformation, sources.

Until next time, keep frosty, and remember to take everything you read online with a grain of salt!

 

 

 

 

Ben

The post Trump: You’re Fired appeared first on Economy and Markets.

There’s Not a Snowball’s Chance in Hell of 4% Growth!

What the hell are Donald Trump and his new Treasury Secretary, Steven Mnuchin, smoking?!

A new supply-side strategy? Just when we have overcapacity everywhere thanks to the greatest debt bubble in modern history; one that’s caused consumers, businesses and governments to overinvest and buy?

This is, without a doubt, the stupidest thing I have ever heard!

They actually think that businesses are going to expand under their new strategy. Ha! Businesses didn’t expand with zero interest rates. Instead, they bought back their own stocks and financed near-meaningless mergers and acquisitions?

Sure, Ronald Reagan became president following the greatest inflation and supply-side crisis in history. Hence, his supply-side strategy worked. Duh! Inflation means excess demand versus shrinking supply! More people wanting what little there is. That’s when a supply-side strategy and greater deregulation actually can and does work!

But pundits comparing Trump to Reagan are missing this larger point. We’re in a deflationary demand-side crisis, with excess capacity or supply, like the 1930s.

We don’t need more supply, except in a few little places here and there – like nurses!

We need more demand, and we’re not going to get it. Not while the greatest generation in history (both in size and influence) are saving more and retiring in droves.

How has Japan’s endless and much more extreme stimulus and QE done in creating higher demand in Japan since its demographic trends peaked in 1996?

Exactly!

It hasn’t done a damn thing.

Republicans, Democrats, Libertarians, economists, Wall Street analysts… no one gets that demographics have thrust us into a new era. Almost all developed countries will slow dramatically and/or decline in population growth, workforce growth will decline even more, and innovation/productivity has slowed to near zero, simply because…

WE ARE AGING, DAMN IT!

Why is this so hard for the “experts” leading us to understand?!

Aging people don’t have more demand, they shrink and shrivel up, and then die. They don’t produce more or expand supply either for that matter. I’m sorry for being so frank here, but it’s simply the truth.

Mnuchin believes we can achieve 3-4% growth ahead. He’s got NO CLUE!

The U.S. population grew at 1.1% between World War II and now. Even by rosy government estimates, population growth will be 0.6% into 2060. My estimates, adjusted for the reality of falling birth rates since 2007 and immigration in this slow and much slower ahead economy into 2023 or so, is 0.27%.

With 1.1% growth and a little over 2% productivity on average, you get 3%-plus growth in GDP over a long period of time. That compounds into a great boom, especially with rising debt growth at 2.6 times GDP to leverage that.

But I’ve got news for you Mnuchin. Our debt simply can’t continue to grow at 2.6 times GDP. We won’t see population growth higher than 0.27% for decades (if ever again). And productivity today is close to zero (where it will stay for the foreseeable future). There is absolutely zero chance that we’ll see 3%-4% GDP growth, now or ever again!

More important, our workforce growth is dismal and declines ahead of population, because people retire well long before they die. Look at this chart…

Workforce growth will slow even faster as the baby boom generation has and will predictably retire en mass until around 2024… before they die at age 80-plus (although more might choose to stay in the workforce longer due to an increasingly bad economy).

The recovery since late 2009 has been all about adding back laid-off workers. But it’s been less robust than expected because more older workers decided to check out a bit early and some younger ones just gave up entirely. Well, that’s about to end!

I’ll say it again: Donald and Mnuchin’s plan to achieve 3%-4% growth in the years ahead is doomed to fail. There’s just no way it can happen… period!

And they’re idiotic for even thinking it’s possible.

How stupid could economists like Mnuchin be?

Mark my words: This promise will create one of the greatest economic disappointments in history.

The massive and unprecedented baby boom is aging and dying. Older people don’t spend much, and they’re certainly not as productive as they were in their younger years – not to mention they’re way less innovative. They’re not home buyers, but home sellers. Do we really need more basic infrastructures in this scenario?

Even the U.S. would be LUCKY to grow at 1% a year in the long-term, after the great reset and depression we’re about to plunge into. Unemployment is going to skyrocket as high as 15% to 20% first, so any recovery will be focused again largely on recouping the lost jobs.

So, Republicans and independents: Trump is following exactly the WRONG strategy for this predictable winter/deflationary stage of our longer term economic cycle! Not that Hillary Clinton and the Democrats had a better one.

The ONLY way to reignite the middle and working class that elected Trump against the odds and polls, that has been sucking wind since the mid-1970s, is to let this damn bubble burst. But do it in a more civilized way than how it happened in the 1930s.

The ONLY way to make America great again is to admit to and fully accept our massive debt and unfunded entitlements… and then restructure them, like a Chapter 11 debt re-organization in business.

By voluntarily restructuring our debts and mal-investments, we can become a better house in the bad neighborhood for decades ahead.

If we don’t, we become the next Japan. A coma economy forever.

And we shouldn’t cut off immigrants that come into our economy ready to work and start a high proportion of new small businesses and even 40% of Fortune 100 companies… we should welcome them more than ever! But only if they have the skills we need and enter legally do we embrace them – like the Canada and Australia models.

Diversity and adversity is the fertile ground of innovation. We’ve had a lot of diversity in the past few decades. We have a lot of adversity to come.

As for 3% to 4% growth… as they say in New York: “Forget about it!”

Even without the great depression and reset I forecast ahead, Trump isn’t going to create 25 million jobs or turn around this economy significantly in the next four years. There is just no way.

Do yourself, your investments and your wealth a favor. Do NOT hold out for success in Trump’s plans. You’ll be setting yourself up for disappointment and failure. Instead, be realistic and find an investment strategy designed to win in this more volatile and downward winter economic season, especially between 2017 and 2019.

Adam O’Dell is helping his subscribers enjoy great returns with Cycle 9 Alert. And he’s just made available the latest trading service under development. We’re calling it Project V for the moment.

Ben Benoy has an incredible Market Intelligence Filter that’s helping MarketVOX subscribers bank profits.

Rodney Johnson’s Triple Play Strategy is the perfect demographic-oriented trading service.

John Del Vecchio’s Hidden Profits is uncovering investments that make investors the #1 priority, and offer unbelievable shareholder yield.

And Lance Gaitan’s Treasury Profits Accelerator is perfectly suited to the crazy times. Any overreaction in the interest rate market and his readers pounce.

You have options. Make the right choice…

And most important, don’t think you can navigate increasingly volatile markets on your own, even with our general advice. This is not the time to open an online trading account and fight the best and most leveraged traders in the world.

 

 

 

 

Harry

P.S. Dent Network members have access to all of the services I mention above, for life… plus immediate access to any new service created, like the recently launched Project V. In fact, Network members get everything we publish for as long as they’re members. Several membership seats recently opened up. We’ll be making them available to you in a few short days. Be sure to watch out for an announcement from us on that. You don’t want to miss this opportunity.

 

The post There’s Not a Snowball’s Chance in Hell of 4% Growth! appeared first on Economy and Markets.

Put Down Your Phone, the Adults are Talking

Dear John,

One of my favorite books is the Tao of Pooh – seriously! Have you heard of it? It teaches the Eastern philosophy of Taoism through the story of Winnie the Pooh. Most of us know Pooh as a simple-minded bear. Mostly he just wants to fill his stomach with honey. But, he’s actually very observant and his “go with the flow attitude” is in harmony with the world around him. Despite all his adventures he usually ends up on his feet.

One of the chapters in the book is titled “The Bisy Backson,” and it describes people that operate at a frantic pace. They stay so busy at being busy that they get very little done. Christopher Robbin was in such a hurry that he didn’t even write “busy, back soon” on his door correctly – thus, “bisy backson.”

The author Benjamin Hoff wrote the book in the early 1980s. Today the book reads like a dark premonition. I know you’ve seen this scene: two people out to dinner (or a whole family, even) with heads’ down and eyes fixed on their phones. There’s no end to impatient text messages resulting in car accidents. Everyone is so busy trying to stay busy and connected that they don’t take any time out to smell the roses.

And because we are so busy at being busy, everything in life has now been reduced to 140 characters or less. That means there’s little time to actually do any research or argue anything with nuance. As a result, there are some huge misconceptions about the world.

You can see this dynamic at play in regard to the economy and the markets, in my opinion, because there continues to be some huge misconceptions and overreactions over the impact of some of the incoming administration’s proposed policies. Investors are simply reacting to headlines and not doing much depth of analysis.

That could be very dangerous for your wealth.

Let’s take a moment and calmly break down infrastructure spending, the repatriation of money held overseas, and tax cuts, which are three big topics that have been in the headlines recently and deserve more than 140 characters worth of explanation.

Infrastructure Spending

Investors are giddy at the prospect of major infrastructure spending. Trump’s plan calls for $100 billion in spending a year for 10 years. Even these days, a trillion dollars is a lot of money! That all sounds well and good on the surface. After all, if you listen to talking heads on TV you’d think we were a third-world country with roads, bridges, and airports crumbling into oblivion.

To be sure, our infrastructure needs some tender loving care. But, did you know we spent $416 billion on infrastructure in 2014 across federal, state, and local governments? Total transportation infrastructure was $279 billion. Of that highways saw $165 billion in spending. Water infrastructure was over $100 billion alone.

So, where’s the beef? Trump’s plan is not transformational; it’s incremental at best. Add in the fact that Republicans are generally against this sort of spending – not to mention there isn’t enough skilled labor in the U.S. to work on these projects – and the implementation of the plan looks far from certain.

While it may help some companies, it’s hardly a magic bullet in my opinion. Take Deere & Co (NYSE: DE), for example.

John Deere’s stock is up a lot recently because investors are excited about the grand infrastructure plan that Trump has in place. But, if you look back to 2014 when spending was $416 billion, Deere’s revenues are down 27% since that time. So, why would investors expect them to all of a sudden increase dramatically from here? Trump’s plan is incremental at best. The notion that all these companies are going to see huge revenue increases is way overblown as their business has been in decline despite massive infrastructure spending in recent years.

Repatriation of Currency

This is a good one. Word on the Street is that there’s over $2.5 trillion held by U.S. companies overseas. If they just didn’t have to pay a massive 35% tax on that money, job growth would explode and more money in the pockets of workers would spur economic growth.

It doesn’t really work that way. Let’s go back to 2004. There was a major bill aimed at cutting taxes. It was called The American Job Creation Act, but it did little to actually create any jobs – no jobs, fact! Rather, companies used the excess cash flow created by the policy to buy back stock and pad their own wallets with fat bonuses. In my opinion, it was a colossal failure.

The other problem with this theory is that it assumes the money is locked away in some safe box somewhere and cannot be accessed by the company. But, in recent years, companies have taken on huge amounts of low-cost debt to finance investments and increase productive capacity.

On the positive side, the low-cost debt has reduced the overall cost of capital and in turn can raise the return on invested capital on projects. The bad news, however, is that the money has already been spent. So, bringing back this capital will do little to create jobs. If new tax breaks pass Congress, I suspect that, just like in the past, it will mostly be used for financial engineering and buying back stock.

Tax Cuts

Independent analysis of proposed tax cuts show that nearly 50% of the tax relief will go to the top 1% of earners. I stayed up until 3:30 a.m. the night of the election. I watched all of the election results come in that night. The top 1% didn’t get Donald Trump elected president. The bottom 50% did.

By some accounts he appears to have tremendous appeal to working class voters, particularly in the Midwest. Unfortunately, his tax plan won’t help them much. Middle-income workers would take in an extra $1,000 – or about 1.5% of their income. Meanwhile, the poorest 20% would get about $100 in annual tax relief.

That, folks, is not going to move the needle.

Meanwhile, the top 1% will benefit by more than $214,000. Since wealthier people tend to be older (that additional time allows them more room to accumulate wealth), this group of people is now past their prime spending years. That’s bad news for the economy. That money isn’t going back into mom-and-pop shops and big box stores. It’s likely that additional personal tax savings will simply get saved and invested. So, while the benefits may really help the 1%, it might not do much for the economy.

This is much in the same way that the stock market is at all-time highs and has had a huge run overall since 2009 while, simultaneously, we have experienced one of the worst economic recoveries in our history.

The stock market has been on a tear since the election. But I fear that investors are only reacting to headlines. That’s the world we live in today. They may be sorely disappointed after the first 100 days of the next administration when very little gets done and the benefits are not what they thought they would be.

Happy investing,

 

 

 

 

John Del Vecchio

Editor, Forensic Investor 

The post Put Down Your Phone, the Adults are Talking appeared first on Economy and Markets.

Taking a Closer Look at the Latest Employment Numbers

Last week the Bureau of Labor Statistics reported that the U.S. economy created 178,000 jobs – with 156,000 in the private sector and 22,000 in government – which is right in line with the monthly average for 2016.

But let’s dig a little deeper past the headline numbers. For years we’ve argued that there’s more to the story than just the number of jobs created. We want to know, and our economy depends on, how much money people are paid.

To answer that question, years ago we created the Dent Employment Index. It tracks the new jobs created each month by income, and then separates them into twelve buckets that each represent an hourly wage range.

Each bucket contains an equal number of workers in the overall economy, so there are six groups below the median wage and six groups above. When we compare the latest batch of jobs created by income with the spread of existing jobs, it allows us at a glance to see if we’re adding more jobs in higher-paying positions or concentrating work at the low end.

The numbers from November are promising at first glance…

We added more private-sector workers (93,000) above the median wage than below (63,000).

That’s a great result that we should not discount. Even though new jobs aren’t spread evenly across wage buckets, there was a good mix of high and low-paying positions created, with a skew toward the upper end.

But this one month obscures a long-term trend in the jobs market: Middle-class growth is missing.

Compare the monthly chart above with a chart of the last 12 months…

While the numbers still show positive results with more jobs added above the median than below, the middle categories are woefully shy of growth – and jobs below the median are highly concentrated in the lowest bucket of $12.98-$16.79 hourly wages.

A quick glance at the job description table in the BLS report explains the situation. Over the last year, we added a bunch of bartenders, waitresses, and low-end retail employees to the national payroll. These jobs pay low-end wages. For example, on average $14.94 in retail and $12.55 in leisure and hospitality for November.

It could be that many of those new hires are college kids or simply young adults starting out in life. Maybe they’re earning a few bucks on the side as they get their careers in gear.

Or maybe, this is their career. Perhaps we’re filling the employment ranks on the low end with service workers that don’t have much of a path to the middle class, where new jobs are few and far between.

In a broad sense, the employment numbers from last month and the last 12 months are encouraging, as we all want to see more Americans earning higher wages.

But the spread of income, with such a large cluster of growth in the bottom bucket, tells us there’s plenty of work to do – and not of the bartending variety – to push our economy into a higher gear.

 

 

 

 

Rodney

Follow me on Twitter @RJHSDent

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