bonds
How to Profit from China’s Economic Slowdown
By Moe Zulfiqar for Daily Gains Letter | Mar 13, 2014
There’s a significant amount of pessimism towards the Chinese economy these days, and the reasons behind this are very understandable. The economic data suggests the country is headed toward an economic slowdown.
In 2013, China’s gross domestic product (GDP) grew by 7.7%—barely better than the previous year and the estimates that were calling for the lowest growth rate since 1999. (Source: Yao, K. and Wang, A., “China’s 2013 economic growth dodges 14-year low but further slowing seen,” Reuters, January 20, 2014.) Keep in mind that despite beating the estimates, this GDP growth rate is much lower than the country’s historical average.
This isn’t all. A credit crunch is also in the making. We are now hearing how companies in China will have troubles paying their interest on the bonds they have issued. So far, we have seen one default on payment by Shanghai Chaori Solar Energy Science & Technology Co. This solar company, based in China, defaulted on a $14.7-million interest payment on bonds it issued two years ago. (Source: Wei, L., McMahon, D. and Ma, W., “Chinese Firm’s Bond Default May Not Be the Last,” The Wall Street Journal, March 9, 2014.)
Before this default, there was a slight hope that the government would come in and bail out the troubled companies—something that happened in the U.S. economy during the financial crisis in 2008. Now, with this default, there are speculations that we will see more of the same.
Furthermore, there are concerns that property values in the Chinese economy are going to see a correction. Over the past few years, there has been the mass development of ghost … Read More
As Investors Grow More Skeptical Toward Stocks, Time to Move to Safe Haven ETFs?
By Moe Zulfiqar for Daily Gains Letter | Feb 19, 2014
We see there’s a significant amount of economic news mounting against the argument that key stock indices will go higher this year. We see major companies on the key stock indices reporting corporate earnings that are dismal to say the very least. We see indicators of prosperity suggesting the opposite is likely going to be true for the U.S. economy. Lastly, we also see troubles developing very quickly in the global economy.
First on the line are the corporate earnings of companies on the key stock indices—which is hands down one of the main factors that drive these indices higher. We see companies showing signs of stress. Consider General Motors Company (NYSE/GM), for example; the company’s corporate earnings declined 22% in 2013 from the previous year. (Source: “GM reports lower-than-expected 4Q earnings,” Yahoo! Finance, February 6, 2014.)
Some might call this a story of the past; we need to look at what the future looks like instead. Sadly, going forward, companies on the key stock indices and analysts look worried as well. Consider this: so far, 57 S&P 500 companies have issued negative corporate earnings guidance, while only 14 have issued positive guidance. At the same time, analysts’ expectations are coming down as well. On December 31, the consensus estimate expected S&P 500 earnings to grow by 4.3%; now, these expectations have come down to 1.5%. (Source: “S&P 500 Earnings Insight,” FactSet, February 7, 2014.)
Looking at the broader U.S. economy, it’s not moving in favor of the key stock indices, either—the economic data isn’t looking very promising.
Industrial production in the U.S. economy declined in January from the previous … Read More
Risk-Free Daily Income on Your Existing Stock Holdings?
By George Leong for Daily Gains Letter | Jan 16, 2014
We saw some decent buying on Tuesday but overall, stocks have been languishing early on in 2014, which has some traders concerned that a correction may be brewing.
However, I’m not sure that’s the case. The stock market may just be taking a breather following its superlative gains in 2013. I’m not surprised; in fact, I expected this would happen.
This year will likely be a more difficult year to make money, as the market is looking for reasons to buy. I still feel the direction of the stock market will be up, but it will be at a slower rate.
Now, if the stock market should continue to stall or gyrate in a sideways channel around record highs, you could take advantage of this without adding stocks.
You can earn daily income on your existing stock market holdings without having to pick up dividend stocks or shift capital into low-paying bonds. And my strategy is pretty easy and straightforward.
I’m referring to the use of writing covered call options on some of your key long-term core holdings to generate premium income and reduce the average cost base of your positions. By writing covered call options on your existing holdings, the premium income added could allow you to earn some daily income. But you need to be comfortable with possibly losing a holding.
For those who are not familiar with covered call options, the execution is simple: all you do is sell or write call options on one of your stock holdings, and in return, you’ll receive a premium for assuming the risk. You select the month of expiry and … Read More
Where the Fed Went Wrong When It Decided to Taper
By John Whitefoot for Daily Gains Letter | Jan 14, 2014
The merriment, mirth, and cheer on Wall Street over the holiday season may have been a bit premature; in fact, the optimism about the U.S. economy that ushered in the New Year may have already come to a screeching halt.
In mid-December, the Federal Reserve surprised investors when it announced it was going to start tapering it’s generous $85.0-billion-per-month easy money policy in January to just $75.0 billion per month. The pullback was a surprise, because the Federal Reserve initially hinted it wouldn’t ease its monetary policy until the U.S. unemployment rate fell to 6.5% and inflation rose to 2.5%. At the time of the announcement, U.S. unemployment stood at seven percent and inflation was hovering around historic lows below one percent.
The Federal Reserve moved sooner than expected with its tapering because of a (so-called) stronger U.S. economy and jobs growth. And, going forward, it said that U.S. unemployment figures will improve faster than expected. But, a raft of new economic numbers is calling that optimistic forward guidance into question.
In December, the U.S. economy created just 74,000 jobs, the slowest pace in three years, with the majority of the jobs (55,000) coming from the retail industry. Despite the weak jobs growth, the U.S. unemployment rate managed to fall from seven percent to 6.7%—the lowest rate since October 2008. But numbers are deceiving—the big drop in the unemployment rate was primarily a result of 347,000 people dropping out of the labor force.
Throughout 2013, the U.S. economy created 2.18 million jobs; in 2012, the U.S. economy created 2.19 million jobs. Looking at this from another angle, in 2013, the … Read More
Boost Your Returns with These Small-Caps
By George Leong for Daily Gains Letter | Jan 9, 2014
For most investors, the past year was about the search for higher-risk assets with the potential for achieving higher returns. This desire helped to propel the NASDAQ and Russell 2000 to returns in excess of 30%, while dividend paying stocks lagged in performance.
Now as we move along in 2014, we could see buying shift to more conservative stocks that pay a dividend to investors. The shift to these stocks could accelerate as comparative bond yields rise, making income investors choose between bonds and dividend stocks.
As an investment strategy, you can consider buying the large-cap dividend plays, such as General Electric Company (NYSE/GE) or The Procter & Gamble Company (NYSE/PG).
But while buying large-cap blue chips always makes sense to your overall portfolio strategy, you can increase your portfolio’s overall potential returns by adding small-cap dividend stocks. By doing so, you can usually add in higher capital appreciation potential.
And while there are numerous small-cap dividend plays in the financial and industrial sectors from which to select, I’d like to highlight a couple above-average stocks that you may want to examine further. As I said, these smaller companies offer dividends and higher capital appreciation potential.
In the area of investment management, a mid-cap company that looks like it may make a good addition to your portfolio is Och-Ziff Capital Management Group LLC (NYSE/OZM), which has a strong dividend yield of 6.7%. The stock has also advanced 61% to shareholders over the past 52 weeks; the S&P 500 returned just 25%. In the third quarter, Och-Ziff managed to beat the Thomson Financial consensus estimate by $0.07, reporting $0.27 per diluted … Read More
Do Low-Yield Stocks Provide Better Income Potential?
By John Whitefoot for Daily Gains Letter | Jun 4, 2013
In a high-interest environment, fixed-income assets like Treasuries, bonds, and certificates of deposit (CDs) are a staple for risk-averse investors. They provide regular investors with a stable place to park their retirement money while collecting a steady return.
By keeping interest rates artificially low, the Federal Reserve has sent income-yield-hungry investors running for the much riskier stock market. While the Federal Reserve recently hinted it might taper its $85.0-billion-per-month quantitative easing policy, investors are hardly willing to reconsider traditional fixed assets.
And why should they? Sure, it’s been six years since investors’ nerves were thrashed from the market crash and four years since the recession ended, but the economy doesn’t look or feel any different, despite the S&P 500 and Dow Jones Industrial Average touching new highs almost weekly.
For many investors nearing retirement or already retired, high-yield dividend stocks have become the new bond market. Unfortunately, some investors looking to pad their retirement account have been too heavily focused on that one solitary metric.
Not all high-yield dividend stocks are created equal. Where an investor might have avoided a stock because of red flags, today, they are considering the same stock waving the same flags, simply because they offer a strong dividend—regardless of whether or not they have enough money to do so.
Investors looking for steady capital appreciation and strong dividend growth are not usually looking for a financial roller coaster to invest in. But that’s what they’ll get if they don’t do their research.
In December 2012, Just Energy Group Inc. (NYSE/JE) was trading above $9.00 per share and paid out $1.24 annually. In February of this … Read More
Two Reasons Why Dividend Stocks Have Room to Run
By John Whitefoot for Daily Gains Letter | May 3, 2013
Thanks to artificially low interest rates, the Federal Reserve has taken the “income” out of “fixed income,” and made saving for retirement that much harder for the average American.
Back in the 1980s, the interest rate on a 10-year Treasury was above 15%. Investors planning for retirement could rely on their fixed incomes providing them with solid, reliable profits; they knew what their annual returns would be, and could budget and spend accordingly.
Today, the 10-year Treasury interest rate is less than two percent. That’s not much for the average American to bank on when it comes to retirement investing. In fact, low interest rates have essentially eliminated the chance for Americans to earn a decent income from fixed equities.
In an effort to eke out as much income as possible from their retirement portfolios, investors are turning their attention to high-yield investment stocks. On one level, it makes total sense—replacing one income-generating investment vehicle with another. At the same time, it’s important to remember that dividend stocks are still stocks—and a lot riskier than fixed-income investments.
The current challenge, some contend, is that income-starved investors have elevated dividend stocks to unsustainable levels. Once interest rates begin to rise, investors will pour out of dividend stocks and into the safety of government equities, at which point, dividend-yielding stocks—and their once reliable income—will tumble.
While it is true that dividend-yielding stocks are more popular than ever before, that does not mean they will fall out of favor once the economy rebounds.
Companies are sitting on cash. You need cash to pay out dividends, and companies have been hoarding cash. According to … Read More
