Daily Gains Letter

easy money


Three Tips for Investing in the Emerging Markets

By for Daily Gains Letter | Mar 20, 2014

How to Profit from the Sell-Off in the Emerging MarketsInvestors are asking one question these days: should you be buying emerging market stocks or will they decline further?

In the long run, I am bullish on the emerging markets. The reason for this is very simple: the emerging market economies have a significant amount of room to grow. For example, in some emerging countries, a massive portion of the population still lives without electricity; there are not enough homes; roads aren’t there to sustain the population; industries aren’t developed; and the list goes on…

Understanding what’s happening in emerging market stocks now is very important for those who are looking to invest. When the Federal Reserve started to implement its easy monetary policies, investors rushed to the emerging markets; they could get better returns there. Now that the Federal Reserve is threatening the prospects of easy money, investors are worried and selling.

Since we started to hear speculations that the Federal Reserve would taper its quantitative easing, investors have been rushing out of the emerging markets. No matter where you look in the emerging markets, you will see key stock indices facing a sell-off.

Look at the chart of Turkey’s stock market below. It’s down more than 30% since June of 2013.

Turkey (Istanbul) ISE National 100 Index ChartChart courtesy of www.StockCharts.com

Turkey’s stock market is just one example; other emerging markets stocks are sliding lower as well. For example, China’s stock market is down more than 12% since June of last year. The Brazilian stock market is down about 20% for the same period.

According to my analysis, it shouldn’t be a surprise to see the stocks in emerging markets slide even lower. You … Read More


Three Stocks for Celebrating the Bull Market’s Fifth Anniversary

By for Daily Gains Letter | Mar 12, 2014

Bull Market’s Fifth AnniversaryNormally, an anniversary is worth celebrating. But with the S&P 500 having recently celebrated the fifth anniversary of its bull market run, there are many economic reasons to question its longevity. Considering the economic data of the last five years, it may make more sense to question how the bull market ever got to this point.

On March 9, 2009, the S&P 500 hit bottom, closing at 676.53 and capping a 16-month sell-off that saw the S&P 500 shed more than half of its value. Over the last five years, the S&P 500 has more than made up for the loss, climbing almost 180%. The average American has not fared quite as well.

For starters, the S&P 500 is only as strong as the stocks that make up the index. And because those stocks are a reflection of the U.S. economy, they should (one would think) run in step with the economic data. But this hasn’t been the case.

Over the last five years, the U.S. has been saddled with high unemployment, stagnant wages, high consumer debt levels, weak durable goods numbers, a temperamental housing market, waning consumer confidence levels, and a growing disparity between the rich and the poor.

In an effort to appease shareholders, businesses implemented a form of financial engineering, masking weak earnings and revenues with cost-cutting measures and unprecedented share repurchase programs. In fact, in 2013, share buybacks amounted to $460 billion—the highest level since 2007.

More recently, in 2013, the S&P 500 notched up 45 record closes—climbing roughly 30% year-over-year. Yet despite a year full of all-time highs, each quarter, a larger percentage of companies … Read More


What’s Happening in This Stock Market Reminds Me of 1999…

By for Daily Gains Letter | Feb 26, 2014

Stock Market Reminds Me of 1999What year is this—1999?

Some of you might have been active investors in the bull market during the late 90s, as I was, witnessing the S&P 500 soar during that decade. In fact, the bull market was so strong back then that it created a false sense of confidence, as many people quit their regular jobs to become traders. As we all know, this didn’t last forever and the S&P 500 bull market popped and sold off sharply.

Just a couple of days ago, I read an interesting article about how small investors are back, seduced by the bull market, which has resulted in a very strong performance for the S&P 500 over the past few years.

There is nothing wrong with enjoying this bull market move, but when everyone thinks they are an exceptional trader over a short period of time, this worries me.

In the article, the active investor is an equipment salesman who is now “considering quitting his job to trade full time.” (Source: Light, J. and Steinberg, J., “Small Investors Jump Back into the Trading Game,” Wall Street Journal, February 21, 2014.)

This is what happens in a bull market; the consistent strength lulls people into believing they are somehow able to predict the future, when just a couple of years ago, they had no clue how to make money in the stock market.

That is the real test for investors—will your strategy work through a bear market as well as through a bull market? Just because you keep buying every dip in the S&P 500 and have, so far, been rewarded, this is not an … Read More


Three Stocks to Profit While Market Struggles with Positive Return

By for Daily Gains Letter | Feb 4, 2014

Three Stocks to ProfitIf January is any indication of the stock market action in 2014, we’re in for a long year. After a scorching year, the key stock indices are ending the first month of 2014 in the red. As we say goodbye to January, it’s worth noting that the S&P 500, after notching up five-percent in the first month of 2013, gave up three percent of its value during the first month of 2014.

The other indices aren’t faring any better. The NYSE posted a 3.8% gain in January 2013, but lost 3.2% of its value in January 2014. The Dow Jones Industrial Average gained six percent in January 2013, but at the close of January 2014, it’s down almost five percent.

But, if you listen to the overly optimistic statisticians, a bad January does not necessarily portend a bad year. Since 1962, in January, the S&P 500 has fallen by more than four percent nine times. But, when that occurs, the S&P 500 is actually up between February and the end of the year—though barely. During those nine years with losing Januarys, the average February–year-end returns tallied 1.08%. (Source: Ratner, J., “A weak January for stocks isn’t as bad as you think,” Financial Post, January 31, 2014.)

Though, there are some statistical anomalies in there that might just be helping the so-called as-goes-January seasonal anomaly, in two of the nine years (1968 and 2009), the S&P 500 reported double-digit gains over the final 11 months of the year. In 1968, the S&P 500 was up 12.1%; in 2009, it was up 35.3%.

In the same time, the S&P 500 saw a … Read More


How to Profit from the Collapse in Emerging Markets

By for Daily Gains Letter | Jan 30, 2014

Emerging MarketsAfter years of easy money and a failure to secure a well-executed exit plan, it looks as though the emerging markets are getting a taste of the Federal Reserve’s economic tapering. Over the last five years, the emerging markets have benefited from low interest rates and listless growth in developed countries.

But, with the U.S., Japan, and Europe—the three biggest economies globally—all expanding for the first time in four years, the tables are turning and the sheen is beginning to wear on the emerging markets.

In an effort to help kick start the U.S. economy after the financial crisis in 2008, the Federal Reserve enacted it’s overly generous bond buying program (quantitative easing). All told, the Federal Reserve dumped more than $3.0 trillion (and counting) into the markets and has kept interest rates artificially low.

The ultra-low interest rates might have been great for home buyers, but income-starved investors had to look elsewhere to pad their retirement portfolio. Many retail and institutional investors went to the emerging markets, where the interest rates were higher and there was a real opportunity for growth.

In December, the Federal Reserve said it was going to begin tapering its $85.0-billion-per-month quantitative easing strategy to $75.0 billion a month in January. Just yesterday, the Fed announced it will be reducing that number to $65.0 billion a month in February. While the amount is negligible, it signals the eventual end of artificially low interest rates. The cheap money that propped up asset prices in emerging markets, like India, China, and Indonesia, is beginning to crumble.

The Argentinean peso, Indian rupee, South African rand, and Turkish lira … Read More


Where the Fed Went Wrong When It Decided to Taper

By for Daily Gains Letter | Jan 14, 2014

What Wall Street Celebrated Too EarlyThe 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


Will 2013’s Worst-Performing Metal Rebound in 2014?

By for Daily Gains Letter | Jan 9, 2014

Metal Rebound in 2014The year 2013 was not kind to gold; the yellow metal closed the year down about 28%—its biggest annual drop in three decades. But in spite of the awful year for gold, it wasn’t the worst-performing metal in 2013. That dubious distinction goes to silver.

On the heels of quantitative easing, a devaluation of the dollar, and inflation, safe haven investors were expecting silver prices to trade in the $30.00–$50.00-an-ounce range. Sadly for these investors, that did not come to fruition.

After starting 2013 at $30.00 an ounce, the white metal finished the year around $19.50 an ounce—an annual loss of 36%. The dismal year is even more cringe-worthy when you consider silver recorded an average price of $31.15 in 2012—the second-highest on record.

Silver prices tanked in mid-April on the back of gold’s violent descent. Gold prices plummeted (in part) on the rumored sale of gold reserves in Cyprus. This decline occurred despite the demand for physical gold remaining strong in India and China. This point is important because, together, these two countries account for more than half of the annual demand for gold.

Still, silver prices fell in step with gold and then continued to slip lower over the ensuing months after the Federal Reserve hinted it might begin to taper its $85.0-billion-per-month easy money policy.

While analysts are divided as to how silver will perform in 2014 (some of them are calling for a range of $19.00–$26.00 an ounce and others are suggesting $30.00–$34.00 an ounce), the year will present investors with some solid opportunities.

For starters, the recently announced pullback in quantitative easing from $85.0 billion … Read More