Daily Gains Letter

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What China-Japan APEC Talks Could Mean for Investors

By for Daily Gains Letter | Nov 12, 2014

China-Japan APEC Talks Could Mean for InvestorsThe annual Asia-Pacific Economic Cooperation (APEC) summit started on Monday in Beijing, and I bet there will be a lot of discussion on the state of China and Asia in the global economy.

My readers all know the impact of China on the global economy, as I’ve written on its relevance before. If China fails, so will the global economy, including the United States and the fragile eurozone. Russia is already looking to extend its economic ties beyond the Great Wall.

Yet it’s clear the country that gave us spectacular double-digit gross domestic product (GDP) growth for years is now struggling. The Chinese economy has already seen its growth slow, coming in at 7.3% in the third quarter, the slowest pace since 2008. And it isnow threatening to fall short of the 7.5% target set by the government. At this point, it doesn’t look like the target will be met. In fact, there are whispers that the target could be cut to seven percent in 2015 if the global economy doesn’t experience a stronger recovery.

Pundits and China bears have been calling for the great collapse of China, specifically in the real estate and financial spaces. Yes, there is softness here, but we have yet to see a bigger crack form. You can bet the Chinese government will do whatever is necessary to reinforce its economy’s weak points. And China can definitely do this, given the fact that the country has about $3.0 trillion in reserves.

President Xi Jinping, who is in his second year of his 10-year term, knows the country needs to spread its wings globally. That is … Read More


Gold Prices: Where They’re Headed and How to Profit

By for Daily Gains Letter | Nov 5, 2014

Gold PricesAs far as investment and trading opportunities go, gold is currently the stock market’s poor cousin. No one really craves the yellow ore at this time. The reality is that unless you are looking for jewelry, there’s really no reason to buy the metal right now.

Back in September, when I last discussed the prospects for this precious metal, I wrote that “in the absence of further turmoil in Ukraine, gold prices could deteriorate to below $1,200, possibly even $1,180.”

The precious metal did bounce to the $1,225 level recently on concerns surrounding ISIS and the economic situations in both Europe and China. Since then, it has also collapsed to below $1,200 to $1,170 for the December contract.

Following the Federal Reserve’s recent elimination of its third round of quantitative easing (QE3) and its hinting at higher interest rates coming sometime in 2015, the metal is now at its lowest level since April 2010. The strong advance reading of the third-quarter gross domestic product (GDP) growth at 4.5% and the strong earnings growth in S&P 500 companies are also making us lean towards higher rates. With this, the greenback has been moving higher, which is hurting the demand for gold due to its denomination in U.S. dollars.

In addition, inflation, a supporter of gold, continues to look benign both at this time and as we move forward. The metal is used as a hedge against inflation and risk, so in the absence of these two key variables, I’m not surprised to see prices move lower on the charts. And it could worsen.

Moreover, the so-called positive impact of buying from … Read More


My New Strategy for China’s Slowing GDP Growth

By for Daily Gains Letter | Oct 24, 2014

China’s Slowing GDP GrowthAs many of my long-time readers may already know, I have been bullish on China and Chinese stocks for some time. However, I’m now thinking that there could be some growth issues forming in the shadows—but that doesn’t mean there isn’t an opportunity to profit.

We have been seeing some obvious signs surfacing that suggest China’s economy is stalling, but we really don’t know the true underlying gross domestic product (GDP) growth rate in the Chinese economy.

According to the National Bureau of Statistics, China’s GDP grew at an annualized 7.3% in the third quarter, the slowest growth in five years and down from the 7.5% reached in the second quarter. The growth is also increasingly near the seven-percent threshold, which is a psychological level we have been monitoring.

Now, these are the numbers coming out of China, so there are some concerns that the readings may have been massaged to some degree to meet our expectations. I’m not saying with 100% confidence that the reading is false, but with China’s past record of false reports from Chinese companies, you have to wonder if the actual growth may be closer to the seven-percent level—or even below, as some market pundits believe.

In the end, it wouldn’t surprise me if the country’s GDP numbers were lower. China has been struggling with weak demand for the amount of commercial and residential real estate that has been—and continues to be—built around the country. There’s wide evidence of many offices and condominiums sitting empty with no market.

China has been building over the past decades to drive its industrial revolution that has made it … Read More


How to Play the Coming Eurozone Depression

By for Daily Gains Letter | Oct 13, 2014

Russia Sending Eurozone Back into a Depression How to ProfitIn 2013, when it was announced that the eurozone had emerged from its double-dip recession, the European stock market was optimistic and drove stocks higher.

Yet there was a sense the route to higher gross domestic product (GDP) growth was not clear due to the massive debt still on the books of many of the eurozone’s weakest members, widely known as the PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain). Yes, the countries have shown some recovery, but they continue to be plagued by massive debt and abnormally high unemployment.

Unemployment across the region continues to run in the low double-digits, around 12%. For the youth under the age of 25, it’s much worse, with the unemployment rate around 40% in some of the PIIGS countries.

The problem is that a weak jobs market in the eurozone doesn’t reflect positively for the economies.

We are now seeing growth issues with the two pillars of the Eurozone, Germany and France, which are widely credited with helping to save the eurozone from a financial Armageddon.

The effects of the economic sanctions placed on Russia for its involvement in the Ukraine crisis appear to finally be filtering their way through to the eurozone and Europe, specifically Germany. One of Russia’s biggest trading partners, Germany saw a 5.8% decline in its exports in September alone.

The reality is that a weaker Germany doesn’t bode well for the eurozone.

In addition, with more than 800 million inhabitants in Europe, the market is significant. Slowing in this market will surely have an impact on growth in China and the United States, as well as the global … Read More


How the ECB’s Actions Could Boost U.S. Markets

By for Daily Gains Letter | Sep 22, 2014

ECB’s Actions Could Boost U.S. MarketsNot too long ago, the European Central Bank (ECB), to fight the economic slowdown in the eurozone, lowered its benchmark interest rates. The hope with this move was the same as it was in the U.S., England, Japan, or other countries that are facing economic scrutiny: lowering interest rates will eventually increase lending and eventually bring in economic growth. In addition to this, the ECB also announced that it will be taking part in an asset purchase program—something similar to what was implemented by the Federal Reserve.

When I look at all this, it creates a very interesting situation. The ECB is lowering its interest rates as the Federal Reserve and others, like the Bank of England, are building grounds to raise their benchmark interest rates.

For example, the Bank of England is hinting at raising interest rates by spring of 2015. The governor of the central bank, Mark Carney, recently said that if interest rates were to rise in the spring as the markets expect, this move would allow the bank to meet its mandate regarding inflation and jobs creation, according to its forecasts. Simply put, the bank is prepared to raise interest rates early next year. (Source: Hannon, P., “Bank of England Gov. Mark Carney Signals Spring Rate Rise,” The Wall Street Journal web site, September 9, 2014.)

And the Federal Reserve may do the very same.

With this in mind, I question where the next big trade is going to be.

Remember what happened during the financial crisis, when the Federal Reserve and other central banks lowered their interest rates? In search of yields, the easy money … Read More


How to Position Yourself as China Becomes World’s Biggest Economy

By for Daily Gains Letter | Sep 10, 2014

How to Play the Rally in Chinese StocksI’m not sure how many of my Daily Gains Letter readers realize that Chinese stocks, as reflected by the Shanghai Composite Index (SCI), have outperformed the S&P 500 so far this year. After offering up underwhelming performances since 2009, the SCI has rallied 9.98% this year, compared to 8.44% for the S&P 500 and 3.23% for the Dow Jones Industrial Average as of Monday.

We’re not talking about resurgence in Chinese stocks and a return to the glory days more than five years ago; instead, I’m simply saying there’s finally some buying in an oversold Chinese stock market.

Shangai Stock Exchange Composite Index Chart

Chart courtesy of www.StockCharts.com

Of course, there’s the high anticipation of China-based Alibaba (NYSE/BABA) joining the U.S. capital markets on September 19; this move will likely stroke the enthusiasm of investors here. The Internet services company is massive and will give U.S. companies a run for their money, further opening the U.S. market to consumers and businesses worldwide. You can wait and pick up shares of Alibaba or you can play the company via Yahoo! Inc. (NASDAQ/YHOO), which holds a 23% stake in Alibaba.

Now, if you’re a regular reader, you may know that I have been, and continue to be, bullish on the Chinese economy and China. Yes, the economy is stalling, but we are still talking about growth of around 7.5% this year, which is far greater than the rest of the G7 countries.

Just like Facebook, Inc. (NASDAQ/FB) in the social media market with its more than one billion users and enormous potential, I feel the same towards China and its 1.3 billion people. When you have a market … Read More


What I’d Consider Buying as the Market Moves Higher Again

By for Daily Gains Letter | Aug 27, 2014

Consider Buying as the Market Moves HigherThe stock market appears anxious to move higher to new record highs.

In the past week, the Federal Reserve released its Federal Open Market Committee (FOMC) meeting minutes that suggested it wanted to see stronger, sustained growth before deciding on when to raise interest rates. This includes both economic growth and jobs creation.

On Thursday, the Bureau of Economic Analysis (BEA) will report the second reading of the second-quarter gross domestic product (GDP), which came in at a surprising annualized four percent for the advance reading.

The consensus is that the second reading will show the GDP growth holding at the same four-percent level. If it does, it would be excellent for the economy but at the same time, ironically, it would make investors and the stock market nervous about the status of interest rates.

The issue is that the Fed wants to see controlled and steady economic growth and a four-percent reading could raise red flags, pointing to inflation—which means higher interest rates. The inflation rate is benign at this time as consumers continue to hold back on spending.

The stock market will get anxious if the reading remains the same, but we would want to wait to see how the economy fares in the third and fourth quarters of the year before making any drastic moves.

Of course, the stock market is all about expectations going forward and clearly, a strong second reading of the 2Q14 GDP will send some to the exits.

The Fed also wants to see the jobs market continue to expand at its previous trend of generating an average of more than 200,000 monthly … Read More


How Good News from Belarus Could Mean Gains for U.S. Investors

By for Daily Gains Letter | Aug 25, 2014

Profit from a Russia-Ukraine ResolutionIt began with the battle for Crimea, followed by the shooting down of Malaysian flight ML17 in eastern Ukraine, but for Russia, which was blamed for both, there has been a battle over the strength of its economy, triggered by a multitude of economic sanctions by Europe and the United States.

Russia, under President Vladimir Putin, has been in strong denial to all the blame it has received; but clearly, the world sees a different story, which is the reason for the economic sanctions. Now, these economic sanctions have begun to wreak havoc in the region, based on my economic analysis.

The reality is that Russia, based on my economic analysis, is not strong enough economically to survive on its own domestic consumption and ignore the global economy. Yes, Russia has its alliances with China, but it’s not enough, especially since the Chinese economy is also struggling to avoid a hard crash, as my economic analysis indicates.

Putin has had time to rethink his strategy and I’m sure he has had many phone calls from Russia’s business elite regarding the sanctions and their impact on their wallets. Heck, even Putin, who has major economic interests in Russia, is hurting at the bank.

Now there’s hope with a meeting between Putin and Ukrainian President Petro Poroshenko scheduled to take place in Belarus this week. Russian stocks have closed higher in 10 straight sessions as optimism rises and an end to the conflict could emerge following the meeting.

While the benchmark MICEX Index, which comprises the 50 most liquid Russian stocks that represent the Russian economy, is down 2.59% year-to-date as of … Read More


Trouble in the Global Economy? (McDonald’s, Wal-Mart Say So)

By for Daily Gains Letter | Aug 13, 2014

Trouble in the Global EconomyThink all is well—or at least OK—with the global economy? Don’t relax too much, as that doesn’t seem to be the case. As we all know, spending drives economic growth, whether it’s from consumers, businesses, investments, or governments. Without one part or another, there would be added pressure on other areas.

The United States recently saw a strong advance second-quarter gross domestic product (GDP) growth reading that pointed to relatively strong economic growth. But there are other signs that suggest otherwise.

Where I like to look is to the major multinationals and the spending on their goods in the global economy.

A pretty decent barometer on the global economy is consumer spending in restaurants, especially with fast foods.

Fast-food heavyweight McDonalds Corporation (NYSE/MCD), for instance, is struggling to find growth in the global economy, and that’s because spending from the other 99% is stalling.

The maker of the Big Mac announced that its comparable sales for its stores in the global economy fell 2.5% in July. The decline was highlighted by a 3.2% drop in the U.S., along with a massive 7.3% plummet in the Asia/Pacific, Middle East, and Africa (APMEA) regions. Only Europe edged slightly higher.

In its second quarter (ended June 30, 2014), McDonald’s reported a 1.5% contraction in its comparable sales in the U.S.

The reality is that the numbers clearly suggest a continued struggle to lure customers into stores. This is significant, as McDonald’s is a big buyer of products, such as beef, milk, chicken, and vegetables, so a decline in sales in the global economy means less demand for these products. This would translate into … Read More


Stock Market: Institutions Moving in Opposite Direction of Investors

By for Daily Gains Letter | Jul 30, 2014

Institutions Telling Investors to Ease OffAs we move towards the end of July, trading in the stock market continues to be murky and filled with obstacles and uncertainties. The S&P 500 is holding on to a small gain this year, but there’s still a sense of nervousness among investors in the stock market.

While the small-cap stocks segment of the stock market continues to be apprehensive, and with a slightly bearish bias with the Russell 2000 being negative on the year so far, I’m also seeing some warning signs emerging from the broader stock market and blue chip stocks.

The S&P 500 continues to fall short on numerous occasions as it approaches 2,000. The Dow Jones Industrial Average has failed to hold above 17,000 on four occasions. The failure in both of these situations is a red flag, in my view, which could be foreshadowing a potential stock market adjustment. Look, we may only see a correction of five percent or so, but it’s coming.

This is a time to be prudent and take some money off the table, just as institutional investors have been. In an article I read on Yahoo!, institutions divested $7.97 billion in exchange-traded funds (ETFs) in the last week, while retail investors rushed in, buying up about $379 million of equity mutual funds. (Source: Lewitinn, L., “Why is the big money dumping stocks?” Yahoo! Finance web site, July 27, 2014.) This move indicates that the professional money is taking some cash off the table, given the five-year bull market run and current hesitancy in the stock market.

In fact, over the past year, retail investors have been rushing into the … Read More


Time to Shift Some Capital into China’s Stalling Economy?

By for Daily Gains Letter | May 15, 2014

Why Should Consider Buying China NowWhile the stock market is running higher and we have seen some outlandish valuations with many of the high-momentum technology stocks, Chinese stocks continue to wallow.

There are critics saying China is primed for a stock market meltdown, but we have yet to witness this despite the stalled growth in the country. And while some argue the country is stalling, you also have to keep in mind that gross domestic product (GDP) growth in the seven-percent range is not that bad.

Many pundits estimate China will expand at around 7.5% this year. Even if the growth was a tad short, it’s still much higher than the rest of the industrial world. Look at the United States; it’s growing at less than three percent, yet the stock market appears to be fine with that.

Famed investor Jim Rogers, who has been a perennial bull on Chinese stocks, continues to believe China is ripe for strong investment growth. I’m also in that camp.

The Chinese government is looking at liberalizing foreign investments and stock ownership in the country, which should help to add buying interest to the country.

China’s stock market indices have vastly underperformed U.S. indices since late 2008, and this continues to be the pattern. The price chart shows the downward trend in the Shanghai Composite Index from 2008 (shown by the red candlesticks) compared to the upward move in the S&P 500 (shown by the dark green line) on the chart below.

My thinking is that it may be time to look at China if you are not already invested there. You just need to be careful and pick … Read More


Six Ways to Profit from Russia’s Geopolitical Posturing

By for Daily Gains Letter | Apr 11, 2014

Profitable Investment Opportunities for American InvestorsThe situation in Crimea should be closely monitored as it pertains to Europe and the eurozone. Russia is a major trading partner with the eurozone as well, supplying about 40% of the energy requirements in the area. That is why an escalation in Crimea could devastate the region, especially at a time when the economy is finally growing in the eurozone.

I’m carefully watching the stand-off in Crimea and, more importantly, what Russia is doing. Whether it’s simply geopolitical posturing or a plan to enter into Crimea is unclear. The Russians really don’t want a conflict, as it would likely push the country into a recession.

And a recession in Russia would also impact Europe and could drive the region’s economies down. Now, Russia is currently setting up meetings with the United States and United Nations (UN), so there’s some optimism that a peaceful resolution could emerge from the crisis.

The reality is that a healthy Russia also means better times for Eastern Europe, including some of the area’s strongest economic regions, such as Poland.

I view Europe and the eurozone as a potential investment opportunity if the Russia-Ukraine situation is resolved.

The market in Europe and the eurozone is massive and includes more than 800 million people who demand goods and services.

The eurozone’s gross domestic product (GDP) expanded at a rate of 0.3% in the fourth quarter, according to Eurostat. The eurozone is estimated to report GDP growth of 1.2% this year and 1.5% in 2015, according to the International Monetary Fund (IMF). Of course, these numbers could decline if a conflict surfaces in Ukraine.

A look at … Read More


How to Protect Your Portfolio and Profit as Interest Rates Rise

By for Daily Gains Letter | Apr 9, 2014

Interest RatesAccording to data released by the U.S. Bureau of Labor Statistics (BLS) last Friday, the unemployment rate stood at 6.7% in March, which is similar to the unemployment rate in February. A total of 192,000 jobs were added, of which food and drinking places added more than 30,000 and “temporary” help services in the professional and business industry added more than 29,000 jobs. The labor market fell slightly short of expectations as analysts had forecasted the unemployment rate to be 6.6% for March. (Source: “The Employment Situation — March 2014,” Bureau of Labor Statistics web site, April 4, 2014.)

The Fed announced it would start to scale back its monetary stimulus last December, after jobs numbers started to show signs of a recovering economy. The unemployment rate initially dropped, only to settle at levels that have remained unchanged for the greater part of the winter season. Simultaneously, initial jobless claims increased by 5.16% during the week ended March 28, 2014, raising eyebrows toward the ability of the Fed’s policies to carry the string of economic recovery further. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 7, 2014.)

While most economic challenges faced by the Fed for the last four months have been blamed on cold weather, a rigid unemployment rate and increasing jobless claims point towards a weaker-than-expected recovery. Amidst this, the Fed chair, Janet Yellen, while speaking at a press conference on March 19, confirmed that the Fed plans to go ahead with the tapering program in its bid to elevate interest rates up from their near-zero levels. (Source: Risen, T., “Janet Yellen Continues Tapering … Read More


Do Fundamentals and Technical Analysis Still Matter?

By for Daily Gains Letter | Apr 2, 2014

Stock MarketOver the weekend, I met with a friend of mine. He’s been a stock market investor for some time now, and over the last few years—especially since 2012 and 2013—he has done phenomenally well when it comes to his portfolio performance.

While talking to him about markets, he said something very interesting. His exact words were, “If you are investing in the stock market using fundamental or technical analysis these days, you are most likely going to lose money—or your returns will be dismal. The basic principles of investing hardly apply these days.”

“Hold on; what?” I said.

He explained: “Between 2009 and 2011, you could have found some opportunities in the stock market, and there was still value available. After the summer of 2012, it all changed. The stock market is now dictated by financial engineering.”

He went on to say, “Don’t just take what I say; see for yourself as well. Look at the stock performance of the companies that are buying back their shares. Look at the companies that are increasing their dividends. You will see their stock value has risen significantly despite very minute changes in their fundamentals in the last couple of years. If their chart was forming a bearish pattern and you traded accordingly, you probably incurred a loss.”

He is right!

Since the summer of 2012, the stock market has risen significantly. If you look at key stock indices like the S&P 500, its return since June 2012 to the end of 2013 was almost 36%. This means that if you invested $1,000 in the stock market on June 1, 2012 and closed … Read More


How to Profit from ECB’s Attempts to End Economic Slowdown

By for Daily Gains Letter | Mar 31, 2014

Economic SlowdownRemember what happened in the U.S. economy when the financial system was about to collapse? The banks weren’t lending to each other, businesses, or even consumers. The U.S. economy was in a deep economic slowdown. Investment banks like the Lehman Brothers had already collapsed and more would follow. Something had to be done or else it would be a disaster situation.

When all of this was happening, the Federal Reserve stepped in to save the U.S. economy. It started to use a monetary policy tool called quantitative easing. The idea was simple: print money out of thin air and then buy back bad debt from the banks. As a result of this, the banks would have liquidity, which would eventually create more lending, moving the U.S. economy towards the path of economic growth.

You can look at Japan as another example of this. In order to fight the economic slowdown in that country, the Bank of Japan took similar actions to those of the Federal Reserve—I must say, the central bank of Japan has been involved with quantitative easing for a while.

The central bank of Japan wanted economic growth, which was what the Federal Reserve had hoped for in the U.S. economy. Japan’s central bank believed that by introducing quantitative easing, the value of the currency would go down and exports from the country would increase. The Bank of Japan also hoped that the quantitative easing would take the country away from the deflationary period it has been experiencing for some time.

With this in mind, you will come across various arguments. Some will say that quantitative easing has … Read More


How to Profit from This Declining Currency

By for Daily Gains Letter | Mar 25, 2014

Declining CurrencyProblems in the Canadian economy are growing and whispers of an economic slowdown are looming in the air. If an economic slowdown does occur, the Canadian dollar will be the primary victim—and investors can profit heavily from this scenario.

The central bank of the country isn’t very optimistic about the growth. Commenting on the country’s first-quarter growth, the governor of the Bank of Canada, Stephen Poloz, said, “What we have seen is that the numbers in the first quarter have been a little shy of what we were expecting.” He added, “It’s easy to point to the weather as a qualitative explainer, but it is hard for us to believe that all of that is just that.” (Source: Woodbury, R., “UPDATE 3-Canada’s Poloz sees a future of slower growth, low rates,” Reuters, March 18, 2014.)

The Bank of Canada lowered its growth estimates from what it originally anticipated. It now expects the Canadian economy to grow at an annualized pace of 2.5% in the first quarter compared to the 2.9% it predicted in December.

The Bank of Canada isn’t the only place that is suggesting the Canadian economy is headed towards an economic slowdown.

The companies traded on Canadian stock exchanges are warning about an economic slowdown, too. We can tell this by looking at their corporate earnings. If their profits start to show troubles, then it means the overall economy may be slowing. Consider this: in the fourth quarter of 2013, 60% of all the companies on the Toronto Stock Exchange (TSX) missed their earnings expectations. (Source: Shmuel, J., “Why is the TSX rallying even as Canadian companies suffer?” … Read More


Why Major Profits Could Be Ahead for Investors in Natural Gas

By for Daily Gains Letter | Mar 24, 2014

Natural GasOne of the most important investing lessons I have learned over time is to be careful when the price of an asset goes up significantly in a very short period of time—it usually doesn’t end well. Prices increasing very quickly tell me that speculators are entering and they are buying at whatever price the stock may be at the time; it shows irrationality. It’s all about short-term profit—making the quickest bucks in the shortest period of time and leaving.

When I look at natural gas prices, this is exactly what has happened. Please take a look at the chart below of daily prices and how it has been a rollercoaster ride for investors in this commodity recently.

Natural Gas - Spot Price Chart

Chart courtesy of www.StockCharts.com

In late November, natural gas was trading below $3.75. By the end of December, the prices jumped about 19% and surpassed $4.50. Then they declined for a bit in January. From mid-January to the end of February, they soared significantly higher; we are talking about a gain of 50% in just about 28 trading days.

From there, prices have been declining.

As I have stated in these pages before, I am bullish on natural gas in the long run. My reasoning for this: when prices are low, producers don’t have much incentive to produce more. This creates significant supply problems over time. With a growing reliance on natural gas, the supply problem could get even bigger.

One of the reasons that prices soared between January and February was a short-term supply concern. In cold weather, natural gas is used to heat up homes and factories. With the U.S. and … Read More


How to Increase Your Profits as Monetary Policy Tightens

By for Daily Gains Letter | Mar 21, 2014

Federal ReserveThe verdict is in…

The Federal Reserve will taper further. In its statement, the Federal Reserve said, “Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month.” (Source: Board of Governors of the Federal Reserve System web site, March 19, 2014.) The Federal Reserve has been tapering quantitative easing since January by $10.0 billion each month, coming down from $85.0 billion a month in December.

To us, it will not to be a surprise to see the Federal Reserve taper further. If this becomes the case, then in just five months, there will be no quantitative easing. The printing presses will stop.

This doesn’t bother me. It’s all too known and expected.

With this taper announcement, the central bank also provided its projections on where the federal funds rate—the rate at which the Federal Reserve lends to the banks—will go. It said the rate can increase to one percent by 2015. By 2016, this rate can go up to two percent. Mind you, the federal funds rate has been sitting at 0.25% for some time now—since the U.S. economy was in the midst of the financial crisis.

What happens next?

Economics 101 tells us that when interest rates increase, bond prices decline and bond yields increase.

Quantitative easing and low interest rates have caused more harm than good. These two phenomena caused the bond prices to rise and … Read More


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


How to Profit from the Two Things Consumers Can’t Do Without

By for Daily Gains Letter | Mar 18, 2014

Weak Consumer SpendingAnother month of cold weather is being blamed for the most recent weak consumer confidence numbers. Consumer confidence levels for the Thomson Reuters/University of Michigan preliminary index fell from 81.6 in February to 79.9 in March—the lowest level in four months. (Source: Lange, J., “U.S. consumer sentiment slips; bad weather eyed,” Reuters, March 14, 2014.)

Economists had forecast March consumer confidence levels to climb to 82. Instead of celebrating a barely there increase, economists are waxing eloquence on the two-percent decline and two-point gulf between expectations and reality.

In spite of living in North America and having to deal with the cold winter weather that affects most of us, analysts still expected consumer confidence to improve in March…and they seem surprised that it didn’t.

Analysts basically think consumers are too depressed by the weather to shop. This would, of course, bolster their opinion that the U.S. economy is only temporarily stuck and sunnier skies will prevail.

But who can say, really? March’s weak consumer confidence numbers mark the eighth miss in the last 10 months. In all of 2013, consumer confidence numbers beat forecasts only three times.

Maybe the weather can’t take all the blame. In spite of the winter storms, the average U.S. temperature for January was normal, with the warmer West Coast weather offsetting the cooler East Coast weather. The average was 30.3 degrees Fahrenheit, which is only 1/10 of a degree below normal for the month. Things weren’t much different in February and consumer confidence levels actually increased to 81.2 from a projected 80.6. (Source: “National US temperature for January normal despite winter storms,” The Guardian, February … Read More


How to Play the Anemic YOY Change in Retail Sales

By for Daily Gains Letter | Mar 18, 2014

Retail SalesSince the beginning of the year, we have been seeing economic data that suggests consumer spending in the U.S. economy is in trouble—we have seen menial growth, if not negative growth. If this trend continues, it could be very dangerous, since consumer spending is an important factor for calculating the U.S. gross domestic product (GDP).

We recently heard from the United States Census Bureau that retail sales in the U.S. economy increased by 0.3% in February compared to January, and they were up by 1.5% from the same period a year ago. (Source: “Advance Monthly Sales for Retail and Food Services for February,” U.S. Census Bureau web site, March 13, 2014.)

This number sent a wave of optimism through the U.S. economy, since retail sales numbers are an indicator of consumer spending and they were in a decline for three months.

Sadly, it appears not many are looking at the long-term picture of consumer spending and how it’s behaving. The month-to-month changes in retail sales shouldn’t be taken very seriously—these data usually get revised. For instance, we originally heard that retail sales in January declined by 0.4%; that was later revised lower to 0.6%.

If you look at the year-over-year change in retail sales, it will start to show you the poor image of consumer spending in the U.S. economy. Please take a look at the table below; it summarizes the year-over-year change in retail sales in February from 2008 to 2014. (Note: the period date identifies the change from the year prior to that specified date; so for example, February 2008 represents the year-over-year change from February 2007 to … Read More


Why Investors Should Prepare for a Rebound This Spring

By for Daily Gains Letter | Mar 14, 2014

Should Investors Rebalance Their Portfolios for the Spring ThawThe winter storm that recently tore across the northeastern United States will, no doubt, take the blame for the continuing weak economic news and data that have been coming out of Wall Street.  Having been the economic scapegoat since December, there’s no reason to change tactics.

But the raft of ongoing disappointing economic news and data suggests there’s more to the nation’s weak economic news than cold weather. After all, it’s not as if the U.S. economy had been red-hot and then suddenly hit a brick wall in December. If there’s one thing the U.S. economy has been—it’s consistently weak.

For example, while the S&P 500 and other stock indices have been enjoying prolonged bull runs, the U.S. economy has been stalling.  Since the magical bull market began in 2008, the U.S. unemployment numbers have remained stubbornly high and the underemployment numbers eye-wateringly high. At the same time, wages are stagnant and, not surprisingly, retail sales have disappointed. More and more Americans are saddled with out-of-control debt and a record 20% of American households (one in five) were on food stamps in 2013.

Speaking of 2013, while the S&P 500 notched up a 30% annual gain, each quarter, an increasingly larger percentage of companies revised their earnings guidance lower. Saving the best for last, during the fourth quarter of 2013, a record 88% of S&P 500 companies that provided preannouncements issued negative earnings guidance.

But 2014 didn’t start out that well, either. For the first quarter of 2014 so far, 80% of the S&P 500 companies that have issued guidance revised their earnings lower; this compares to the 78% of … Read More


How to Boost Your Profits in This Exhausted Market

By for Daily Gains Letter | Mar 10, 2014

stock marketSince 2009, the U.S. stock market has become one of the hottest plays. Investors have poured in money and have reaped the rewards. In the last five years, many stocks have doubled or more. Looking at all this, one must really question if the stock market can go at this pace for a long period of time.

If you look back, you will notice that whenever there has been too much bullish sentiment, the stock market usually comes down. As it stands, we see stock advisors calling for 2014 to be a year similar to 2013 when the stock market increased significantly.

I don’t agree with the mainstream opinion. I have said this before in these pages: the stock market will most likely not show as robust a performance this year as it did last year—and it may even fall as we head further into the year.

Here’s why…

For the stock market to continue to increase, you want to see momentum on the side of the buyers. When I look at the charts, I see nothing but indecision and exhaustion. It appears investors are struggling to take the prices higher. Look at the chart below. I will use the sell-off we saw in January and early February as an example.

S&P 500 Large cap Index ChartChart courtesy of www.StockCharts.com

One of the indicators of a healthy stock market that I look at is how many days it takes to get back to or break above the market’s previous highs after a sell-off. If the market moves slowly, then you can judge it as not as strong. If it goes back up quickly, then the … Read More


Two Retail ETFs to Get Your Portfolio Through the Last of This Winter

By for Daily Gains Letter | Mar 10, 2014

retail sectorEveryone is blaming the poor economic numbers we have been seeing on the misery of the horrific winter.

Federal Reserve Chair Janet Yellen suggested that the winter was to be partly blamed for the somewhat lousy economic readings in December through to February. With the fierce winter, people are hesitant to venture out to look for work, buy groceries, eat at restaurants, go and watch a movie, or even travel.

While I do agree the harsh winter has impacted the economy somewhat, you can’t blame everything on the weather. If this were true, then we would be starting to witness pent-up demand for goods and services in the upcoming months as the snow and cold dissipate.

Or maybe it’s just because the economy is stalling to some degree.

The jobs market is lousy and will need to pick up some momentum. Maybe with the warmer weather to come, job seekers will venture out and look for work, or perhaps companies are just not hiring as much as the government wants to see, given all of the monetary stimulus that has been spent on driving consumer spending in the country.

The one area that looks pretty fragile at this time is the retail sector. Consumers simply appear to be holding back on expenditures and waiting for deep discounts.

In January, the retail sector reported a 0.4% decline in sales, representing the second straight month of declines on the heels of a revised 0.1% decline in December, according to data from the U.S. Department of Commerce. It’s likely the extreme bad weather conditions in January and February contributed to the soft results—at … Read More


Are ETFs Really the Best Investment for You?

By for Daily Gains Letter | Mar 7, 2014

Pros and Cons of Indexed InvestingOne of the investment strategies discussed in the mainstream these days is to add exchange-traded funds (ETFs) to your portfolio. It is said that when you do just that, your portfolio has lower risks and you are well diversified.

For investors who are not as advanced, when it comes to investing; this investment strategy makes sense. For those who are advanced, they shouldn’t fall for this investment strategy; they may be better off going the other way—buying individual stocks instead.

Let me explain…

Between March of 2009—when the bull market run started—until February of this year, if you bought the most famous ETF for your portfolio—that is SPDR S&P 500 (NYSEArca/SPY), which tracks the S&P 500—your returns would be more than 185%. Plus, there would be dividends. Including dividends, your returns would be just over 200%.

But, saying the very least, you could have done better.

If instead of buying the SPY at the time when markets were presenting investors with an opportunity of a lifetime you bought a company from the S&P 500 like General Electric Company (NYSE/GE), your profits would be upwards of 300%. This is including the dividends you would have received.

With all this said, let me make one thing very clear; I am not opposed to adding ETFs to a portfolio. Rather, I believe investors can get better portfolio returns if they are confident enough in making their investment decisions and buying individual companies instead of sticking to indexed investing.

In 2009, stock markets were very uncertain. With companies like GE, there were fears that it may go bankrupt. Buying at that time wouldn’t have … Read More


What I Learned at the World’s Biggest Mining & Exploration Convention

By for Daily Gains Letter | Mar 6, 2014

World’s Biggest Mining & Exploration ConventionThis week, I went to one of the world’s biggest mining and exploration conventions, which was hosted by the Prospectors and Developers Association of Canada (PDAC) and was held in Toronto. There were hundreds of gold mining and exploration companies showcasing their projects and making their case for how they could be the next big investment.

Saying the very least, it was an interesting experience.

From time to time, I go to conventions like the one I went to a couple days ago. I go to gauge the sentiment of those who are very close to the industry, to see where gold bullion prices might go next.

This week, at the convention, I found that gold exploration and production firms, analysts, and even those who sell mining equipment are skeptical about where gold bullion prices are heading next.

Let me explain…

Over the day at the convention, I spoke to many different companies that produce or explore gold bullion. The majority of them said something along the lines of, “The markets are tough these days,” or “Funding is difficult to get… We are cutting our exploration budget and not going ahead with further expansion.”

Analysts who look at companies involved in the gold bullion sectors weren’t very optimistic, either. Remember when gold bullion prices were reaching their highs? At that time, you would hear calls for the precious metal prices to go higher than $3,000 or even $5,000 an ounce.

This isn’t the case anymore. The negativity is intense. Analysts said something along the lines of, “At the very core, exploration companies and producers won’t increase in value unless gold … Read More


Three Ways to Protect Your Wealth from Global Uncertainty

By for Daily Gains Letter | Mar 5, 2014

Crude oilNothing helps create volatility on the stock market like the threat of war. And just a few short days after the close of the bloated $52.0-billion behemoth in Sochi, Russia has embraced its ne’er-do-well Olympic spirit and invaded the Ukraine. Or, according to Putin, “pro-Russian soldiers” have simply moved into the Ukraine to defend Russian interests.

With a growing threat of war/retaliation on the horizon, investors have been pulling their money from riskier assets, like stocks—sending global financial markets reeling. Crude oil and gold prices, on the other hand, have been on the rebound.

While it seems utterly crass to deconstruct the potential for war down to economics, the fact remains—a stand-off or sanctions could both disrupt gas supplies to the European Union and send U.S. crude oil prices higher.

For starters, any issues in the Ukraine could disrupt the flow of natural gas supplies from Russia to the European Union. That’s because the European Union gets about a third of its crude oil and natural gas supply (and a quarter of its coal) from Russia, mostly piped through the Ukraine. Russia, the world’s biggest crude oil producer, generated 10.9 million barrels a day in 2013 and currently exports close to 5.5 million barrels of crude oil per day.

Since the end of the Cold War, no one really worried about relying on Russia for crude oil and coal. All of that has changed. While the notion of war is remote, it’s still on the table. Nations far removed from Russia and Ukraine might push for economic sanctions, just as the U.S. has done, threatening visa bans, asset freezes, and … Read More


Five Ways to Preserve Your Wealth as Key Stock Indices Decline

By for Daily Gains Letter | Feb 28, 2014

Key Stock IndicesThe key stock indices continue to make new highs. Each day, there’s someone on the TV saying how we are going higher. Some are estimating key stock indices will do much better this year than last. No matter where you look, the opinion seems to be the same: buy stocks and your portfolio will do great. With all this happening, investors must remember one very important lesson that the stock market has taught us over and over again: a rising tide lifts all boats, but tides come and go.

Let me explain…

As key stock indices are going higher, investors’ portfolios may look great. Their return may be exuberant, but they shouldn’t forget that markets tend to move in waves. The conditions may look rosy now, but eventually, it all turns. Key stock indices are known to have corrections—minor or steep.

When the times are good on the key stock indices, such as now, long-term investors have to keep market corrections and sell-offs in mind.

Generally, when the key stock indices turn, investors turn towards government bonds. This is mainly because they move in the opposite direction of the stock market. Investors can protect their assets when key stock indices decline by going heavyweight on exchange-traded funds (ETFs), like PIMCO Total Return ETF (NYSEArca/BOND)—this ETF, like many others, invests in bonds with different maturities. Investors may even consider ETFs like iShares TIPS Bond (NYSEArca/TIP), which invests in the inflation-protected bonds issued by the U.S. Treasury.

Another way investors can protect their portfolio in the case that key stock indices sell off is through gold bullion. The yellow shiny metal has … Read More


Limit Losses, Boost Gains with These Staple ETFs

By for Daily Gains Letter | Feb 27, 2014

Consumer Confidence DeterioratesConsumer spending is highly correlated with consumer sentiment. It makes sense that when consumers believe their jobs are in trouble or they won’t have enough money going forward, they pull back on their spending and only buy what they need. On the contrary, if they believe all is well—they expect a raise at work and have savings—they will go out and buy things they want. This phenomenon increases consumer spending.

As it stands, consumer confidence in the U.S. economy is decreasing, which suggests consumer spending will be in trouble.

Let me explain…

The Conference Board Consumer Confidence Index tracks how consumers are feeling in the U.S. economy. The Board asks individuals how they currently feel about the current state of the U.S. economy, their jobs, and so on and if they believe things will change in the next little while.

In February, we found that the index declined 1.6% from the previous month. The Consumer Confidence Index sits at 78.1 this month compared to 79.4 in January. (Source: “The Conference Board Consumer Confidence Index Declines Moderately,” The Conference Board web site, February 25, 2014.)

The Conference Board Expectations Index, which tracks what consumers think will happen in the next six months, also dropped significantly. This index stood at 75.7 this month, down 6.3% from 80.8 in January.

These aren’t the only indicators that suggest consumer confidence in the U.S. economy is declining. The Bloomberg Consumer Comfort Index suggests the same. This weekly index is based on how consumers feel about the U.S. economy, their personal finances, and their buying plans.

In its latest results, the Bloomberg Consumer Comfort Index stood … Read More


Why I’m Even More Bullish on Gold Bullion Now

By for Daily Gains Letter | Feb 26, 2014

Gold Bullion NowSince the beginning of the year, one asset class has shone when compared to the stock market. I am talking about gold bullion. The yellow shiny metal’s prices are up more than 10%. The stock market, on the other hand, hasn’t performed as well. For example, year-to-date, the S&P 500 is only up by little more than one percent. With this said, I believe gold bullion can surprise investors even more this year.

Let me explain why…

Looking from a technical analysis point of view, there are a few interesting developments that suggest gold bullion prices are heading higher. Remember the first rule of technical analysis: the trend is your friend, until it’s broken. With this in mind, please look at the chart below.

Gold - Spot Price Chart

Chart courtesy of www.StockCharts.com

The downtrend that gold bullion prices were following since late 2012 has now been broken (black line). At the same time, we see prices breaking above the 200-day moving average for the first time since early 2013 and sustaining above the 50-day moving average. This suggests sentiment is turning bullish. In addition to this, we see indicators of momentum, like the moving average convergence/divergence (MACD), suggest bulls are in control (as indicated by the black line below the chart).

The fundamentals of gold bullion prices are suggesting investors are going to reap rewards as well. The demand continues to increase and the supply remains subdued. This is the perfect recipe for higher prices.

In 2013, we saw central banks buy gold bullion; they have been net buyers of gold bullion since 2009. It will not be a surprise to see them buy … Read More


Investment Expenses: Three Ways to Cut Them

By for Daily Gains Letter | Feb 14, 2014

Investment ExpensesLong-term investing and growing a portfolio over time isn’t an easy task. It requires a lot of planning and a significant amount of research. While doing this, many investors tend to forget one very important aspect: the costs associated with investing in their portfolio—the commissions and fees. If investors control the commissions and fees paid to their brokers and elsewhere, they can save a significant amount of money and have a bigger portfolio in the end.

For those investors who have resolved to invest money in their portfolio in 2014, the following are three ways to add more wealth to your portfolio over the long term.

Use Discount Brokers vs. Conventional Brokers

If an investor opens an account with a discount broker—often referred to as online brokers—they can save a significant amount of money in trading fees compared to a conventional broker, who they have to call to place a trade. Discount broker commissions are much lower than those charged by conventional brokers: a discount broker’s fees can go as low at $5.00 per trade, while a conventional broker’s fees can be 10-times that amount or more.

Consider, for example, that you have an account with a conventional broker who charges a commission of $50.00 per trade, and you make about 30 trades on an annual basis. At that rate, your commission charges will amount to $1,500 per year. With discount brokers, these commissions can be as low as $150.00 a year. With the extra $1,350 you saved by switching to a discount broker, you can invest more capital in your portfolio.

Buy Exchange-Traded Funds (ETFs) vs. Mutual Funds

Holding … Read More


Top-Yielding Stocks to Combat Low Interest Rates

By for Daily Gains Letter | Feb 13, 2014

Low Interest RatesFederal Reserve Chair Janet Yellen has confirmed what most already knew. The recovery in the U.S. jobs market is far from complete. Yellen noted that the unemployment rate has improved since the Federal Reserve initiated its last round of quantitative easing in late 2012, falling from 8.1% to 6.6%. Curiously, in 2013, the U.S. economy grew just two percent.

That said, against the backdrop of a so-called improving U.S. economy, the numbers of the long-term unemployed and part-time workers are far too high. In fact, 3.6 million Americans, or 35.8% of the country’s unemployed, fall under the “long-term unemployed” umbrella—that is, those who have been out of work for more than 27 weeks. The underemployment rate (which includes those who have part-time jobs but want full-time jobs and those who have given up looking for work) remains stubbornly high at 12.7%.

The improving unemployment numbers come on the heels of two straight months of weak jobs numbers. In January, economists were expecting the U.S. to add 180,000 new jobs to the U.S. economy; instead, just 113,000 new jobs were added. In December, economists were projecting 200,000 new jobs would be added—instead, the number was an anemic 74,000.

For the head of the Federal Reserve, this translates into more money being dumped into the bond market ($65.0 billion per month) and a continuation of artificially low interest rates.

Once again, bad news for Main Street is good news for Wall Street. After Yellen’s speech, the S&P 500, NYSE, and NASDAQ responded by surging higher. Again, the Federal Reserve’s ongoing bond buying program and open-ended artificially low interest rate environment is great … Read More


Where to Find the Best Opportunities in Emerging Markets

By for Daily Gains Letter | Feb 13, 2014

Emerging MarketsThere are a significant number of concerns regarding the emerging markets at this time. Investors are asking if emerging market stocks are a good buy right now; are the troubles over or are there still more to come?

As it stands, it seems further troubles are brewing in the emerging markets, as the Federal Reserve tapers its quantitative easing program. We have seen currencies in countries like Turkey, South Africa, Russia, and Argentina decline significantly.

You see, when the Federal Reserve first started to lower its interest rates and initiated quantitative easing; it gave birth to a trade. The idea behind this trade was simple: you borrowed money from a low-interest-rate country—the U.S.—then invested that money in a high-interest-rate-paying country—the emerging markets, like Turkey—and banked the difference. The Federal Reserve tapering its quantitative easing is drying up the liquidity—the money that went to high-interest-paying countries has to come back now. This is what’s creating troubles.

Before I go into further detail, I want to restate my opinion on the emerging markets and their stocks: in the long run, they can be very profitable. My main reason for this belief is that emerging markets need infrastructure, meaning construction companies and utilities companies will be profitable. These markets also have massive populations and the middle-class is on the rise, meaning consumer discretionary stocks and companies in the service sector will see growth as a result.

Where are the opportunities in the emerging markets now?

One rule of thumb is that when there’s a broad market sell-off, even companies with great fundamentals and solid track records get punished. Investors sell these stocks in … Read More


Two Reasons to Consider Gold Investments Right Now

By for Daily Gains Letter | Feb 12, 2014

Gold Investments“Why would someone be bullish on gold right now? Stocks have the momentum. Let me warn: you will be better off buying stocks than buying gold bullion.” These were the “wise” words of my good old friend Mr. Speculator, when I met him over the weekend.

Not too long ago, he was afraid about what would happen to his stock position. Now, his opinion has changed. Mr. Speculator thinks key stock indices will hit new highs and gold bullion—which provides safety against the backdrop of a weak economy—will go down further. He said, “It will be a bad year for gold investors.”

Mr. Speculator may be right about the key stock indices. The momentum on the stock market is significantly noticeable. We see buyers come in and buy after every decline. This can continue, but you have to keep in mind that the fundamentals are becoming weak. This can be troublesome and could create a massive sell-off very quickly.

On gold, however, I completely disagree.

I have been bullish on gold bullion for some time, and my main argument has to do with the demand and supply of the precious metal. I see demand for gold bullion increasing, while the supply side is being threatened due to low prices.

We are seeing China become the biggest consumer of gold bullion. It was India before, but the government and the central bank of the country are working very hard to curb the demand for the yellow shiny metal. According to the China Gold Association, in 2013, the total precious metal consumption in the country increased by 41% to 1,176.4 tonnes. This … Read More


Gold and U.S. Bonds the New Great Trade?

By for Daily Gains Letter | Feb 10, 2014

Gold and U.S. BondsThere’s uncertainty on the stock market. Troubles are coming from the emerging markets, and they are causing investors to panic and sell their stocks. We see they are scared. But as this is happening, there’s a trade in the making, and those investors who have raised some cash (as I’ve been suggesting my readers do) and are looking to park their money somewhere safer than stocks can profit from this opportunity.

The trade I’m talking about is the trade that’s happening in U.S. bonds and gold bullion—some call this phenomenon a “flight to safety.” I call it a potential opportunity.

We know bonds and gold bullion are one of those asset classes where investors rush to when the risks on the stock market increase. This is something we are seeing now, and it could continue for some time.

In the following chart, I have plotted the prices of U.S. bonds (red line), gold bullion (black line), and the S&P 500 (green line). Take a look at the circled area, which shows the movement out of stocks.

30 Years US Treasury Bond Price Chart

Chart courtesy of www.StockCharts.com

Since the beginning of the year, U.S. bonds and gold bullion prices have increased in value, while the stocks have fallen. We have seen this relationship before as well. A prime example of this is the stock market sell-off in 2009; we saw investors rush to gold bullion and bonds then in hopes of finding safety.

It’s not too late for investors to consider taking advantage of this shift by looking at exchange-traded funds (ETFs), like iShares 20+ Year Treasury Bond (NYSEArca/TLT). Through this ETF, investors can invest in long-term … Read More


Two Ways to Profit from the Economic Turmoil in Emerging Markets

By for Daily Gains Letter | Feb 7, 2014

Emerging MarketsThe long-expected hit to the emerging markets is finally upon us. The fact that the emerging markets are taking a beating isn’t a total surprise; on the other hand, everyone running for the exits is.

But as physics proves, for every action there’s an equal and opposite reaction—nothing can escape physics; not even Wall Street or the emerging markets.

First, income-starved investors poured money into the emerging markets to take advantage of higher interest rates. Then, after the Federal Reserve said it would begin tapering its bond purchasing program, the money began to pour out of the emerging markets in earnest.

In a nearsighted effort to combat the slide in emerging markets’ currencies, central banks have been raising their interest rates. The Turkish central bank has taken drastic measures to entice investors to return—on January 29 the Turkish government lifted its overnight lending rate from 7.75% to an eye-watering 12% and its overnight borrowing rate from 3.5% to eight percent. The South African central bank raised its interest rate for the first time in almost six years. And the Russian ruble could be next.

This suggests that the underlying danger in the emerging markets isn’t their currencies per se, but the way the central banks are reacting to the slouching currencies. Instead of lowering rates to boost their economies, the central banks have been raising interest rates to prop up currencies.

This could be especially dangerous when you consider that emerging markets make up half of the world’s gross domestic product (GDP). If emerging markets try to follow the U.S. and raise interest rates, it could cripple their own economies … Read More


Another Five Percent Down for the S&P 500, at Minimum?

By for Daily Gains Letter | Feb 3, 2014

S&P 500Though making money is important, that’s not the be-all and end-all behind smart investment strategies. Just think about the common phrase “a dollar saved is a dollar earned.”

Success in trading and investing means you need to be aware of both the upside and downside risks, such as we are seeing now as the stock market moves lower.

In general, investors should hold off on buying for now until we see some solid opportunities. Trading volume is rising on the down days, which confirms the selling pressure. As well, the Dow Jones Industrial Average has declined for five straight sessions, losing nearly four percent in that time.

A look at the chart of the S&P 500 makes me nervous. The index is searching hard for technical support on the chart after dropping below both its 50-day and 200-day moving averages (MAs), as shown on the chart below. The break, while worrisome and bearish, is not a big deal unless we fail to see the emergence of any strong oversold technical buying support.

You want to see high volume on the buy side, as it shows mass market participation and a willingness to buy. Light volume would not be conducive to a sustainable buying support.

Now, as a chartist, one needs to watch several key technical support levels where there has been some buying in the past. The first is around 1,770. Failure to attract sufficient buying support here could see the S&P 500 run downward toward the key 1,700 level, last encountered on October 15, 2013.

$SPX S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Should the S&P 500 decline to 1,700, it would translate … 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


What I Told The Speculator About the Stock Market Now

By for Daily Gains Letter | Jan 30, 2014

Stock Market NowJust a few days ago, I received another call from my good old friend Mr. Speculator. He was worried. He has been long on the stock market since the beginning of the year, but sadly, stocks have come down a bit. He asked, “Do you think there’s more downside on the stock market? Or is this the correction everyone was talking about?” Mr. Speculator bought exchange-traded funds (ETFs) that provide him leverage; he added, “My losses are adding up. Should I sell or wait?”

Mr. Speculator isn’t the only one who is asking this question since the key stock indices started to come down. I hear this question being asked all around. January is supposedly a good month for stocks, but so far, this is simply not the case. The S&P 500 is down roughly three percent. Investors are asking whether or not the returns on stocks are going to be horrible this year.

Looking at the charts and assessing the sentiment, it appears reality is slowly coming back to the stock market. Take a look at the following chart of the S&P 500.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Looking from a technical analysis point of view and taking the S&P 500 as an indicator of the entire stock market, there are a few developments that investors need to know.

First of all, since the beginning of the year, the volume on the S&P 500 has been increasing. This is interesting to note, because it suggests investors are selling into weakness. In addition to this, we see that the S&P 500 has broken below the 1,800 level and has moved below … Read More


How to Profit from the Coming Rush in Bonds

By for Daily Gains Letter | Jan 27, 2014

Profit from the Coming Rush in BondsGenerally speaking, investors move their money from risky assets, such as stocks, to less risky assets, like bonds and cash, when they feel uncertainty is increasing. One of the most recent and great examples of this was the 2008–2009 sell-off in the stock market. Investors ran to the bond market, driving bond prices higher and yields lower. Their reasoning was that the stock market could see a further decline—and it did. On top of that, the Federal Reserve started to buy bonds, so investors had more incentive to stay in the bond market.

In 2013, we saw investors rush to the stock market, and we also heard that the Federal Reserve will be reducing its bond purchases. This created pressures on the bond market, and bond prices declined very quickly. The notion this time was very simple: why stay with low yields when you can get a higher return on your investments in the stock market, especially since the Federal Reserve isn’t buying as much.

Since entering 2014, something interesting has been happening. We are seeing investors rushing to the bond market, and the stock market is seeing a decline. Below, you can see the chart that shows this relationship. I have plotted yields of 30-year U.S. bonds as an indicator of the bond market and the S&P 500 as an indicator of the stock market. Pay close attention to the circled area.

S&P 500 Large Cap Index INDX Chart

Chart courtesy of www.StockCharts.com

Note that when we see buying in the bond market, yields decline. This is the phenomenon we have seen occurring since the beginning of 2014.

The chart above suggests that investors are leaning … Read More


Why the Tech Sector’s at the Top of My 2014 Growth List

By for Daily Gains Letter | Jan 27, 2014

Stock MarketThe technology sector was my top growth area in 2013 and it has been since the reversal out of the recession. The euphoric buying in social media and Internet services stocks in 2013 obviously shows the immense upside price appreciation potential that lies in the technology sector.

The NASDAQ recently broke above 4,200 to a 13-year high and is within 20% of its all-time high of just over 5,100, which it achieved during those crazy and irrational times in late 1999 and early 2000. But we all know what happened thereafter, when the Internet bubble burst.

Now, while we have seen some big-league moves in some of the mobile and social media stocks, the gains are still nowhere near the ridiculous moves made some 14 years ago in the technology sector. I recall some speculators becoming millionaires via buying technology penny stocks that really had no financial history, but these companies were able to cater to the greed in investors to propel the stock market higher.

I doubt these times will surface again, but we will likely see glimpses when stocks rocket higher for no apparent reason except momentum.

Following the Internet bubble, I thought we may not see 5,000 on the NASDAQ for years. But that time has arrived, as the NASDAQ may be set to reach this former pinnacle sometime in early 2015, as long as the investment climate remains positive for stocks.

Take a look at the long-term chart of the NASDAQ below. Notice the record peak in March 2000, when stocks spiked higher.

Nasdaq Composite Chart

Chart courtesy of www.StockCharts.com

Since the technology sector imploded and the NASDAQ bottomed … Read More


Is This Currency Losing Its “Safe” Status?

By for Daily Gains Letter | Jan 24, 2014

Profit from the Canadian Dollar's DemiseNot too long ago, I wrote about an economic slowdown in the Canadian economy and how it could take the value of the Canadian dollar even lower. (Read “How American Investors Can Profit from the Canadian Economy’s Demise.”) By no surprise, the Canadian dollar (also referred to as the “loonie”) looks to be in a freefall. Take a look at the following chart.

The Canadian dollar is currently trading at its lowest level since September of 2009. Since the beginning of the year, the loonie has declined more than four percent compared to other major global currencies.

Considering all that is currently happening, can the Canadian dollar go down any further?

Canadian Dollar - Philadelphia Chart-moeChart courtesy of www.StockCharts.com

Simply put, yes, the Canadian dollar may still see some more downside. After the U.S. economy showed a significant amount of stress during the financial crisis, investors flocked to buy the Canadian currency. This may not be the case anymore.

Since the last time I wrote on this topic, some more information on how the Canadian economy is doing has been released. This new information reaffirms my suspicions. It seems the economic slowdown in the Canadian economy is gaining some momentum; even the central bank of Canada looks slightly worried. This could be very bearish for the Canadian dollar.

First of all, wholesale sales in Canada in the month of November remained unchanged from the previous month. Out of the 10 provinces in the country, only four reported an increase in their wholesale sales. (Source: “Wholesale trade, November 2013,” Statistics Canada web site, January 21, 2014.) Wholesale sales can provide an idea about the retail … Read More


Why Global Economic Growth Is Falling Apart Again

By for Daily Gains Letter | Jan 22, 2014

Global Economic GrowthIt seems the global economy is taking a wrong turn. If it continues on the path it’s on now, it will not be a surprise to see a pullback in its growth. As a result of this, U.S.-based global companies may see their revenues and profits fall, which eventually leads to lower stock prices. You have to keep in mind that the U.S. economy is highly correlated with the global economy.

First, it seems that the demand in the global economy is slowing down as we enter into 2014. One of the indicators of demand in the global economy I look at is the Baltic Dry Index (BDI). The BDI is an index that tracks the shipping price of raw materials. If the index declines, it means demand in the global economy is slowing. If the BDI increases, it suggests the global economy may see an influx in demand. Below is the chart of the BDI. Note that since the beginning of this year, the index has collapsed more than 32% (as indicated by the circled area in the chart below).

Baltic Dry Index Chart

Chart courtesy of www.StockCharts.com

But that isn’t all. We continue to see dismal economic data out of the major economic hubs of the global economy, too.

China, the second-biggest economic hub in the global economy, is showing signs of slowing down. The Chinese economy in the fourth quarter of 2013 grew at an annual pace of 7.7%. In the third quarter, this growth rate was 7.8%. (Source: “China’s Expansion Loses Momentum in Fourth Quarter,” Bloomberg, January 20, 2014.) Although this growth rate may sound very impressive when compared to … Read More


The Economic Slowdown No One’s Talking About

By for Daily Gains Letter | Jan 21, 2014

The Economic Slowdown No One’s Talking AboutIt seems major economic hubs in the global economy are facing hardships, and they are moving towards an economic slowdown. But during discussions about where the next trading opportunity will be, some countries never get mentioned. For example, there is significant talk about an economic slowdown in the Chinese economy and the Japanese economy and how investors can profit. However, the Australian economy goes unnoticed even though it’s facing an economic slowdown as well, and it looks like conditions in the country are getting worse.

Unemployment in the Australian economy is increasing. The Australian Bureau of Statistics reported that in December, the country’s unemployment rate increased to 5.8%—0.1% higher from the previous month. The number of those employed full-time declined by 31,600. Part-time workers increased in the month, and the unemployed increased by 8,000 in December, reaching 722,000. (Source: “Australia’s unemployment rate increased slightly to 5.8 per cent in December 2013,” Australian Bureau of Statistics web site, January 16, 2014.)

The demand for work in the Australian economy is also very slow—a classic situation during an economic slowdown. Job advertisements in the country declined 0.7% in December after declining 0.8% in November. For the year, job advertisements in Australia have declined by nine percent. (Source: Kwek, G., “Job ads: signs of stabilisation,” Sydney Morning Herald, January 13, 2014.)

Another indicator of an economic slowdown, manufacturing activity is not so great in the Australian economy either. The Australian Industry Group Australian Performance of Manufacturing Index (PMI)—an indicator of manufacturing in the Australian economy—contracted for the second consecutive month. The index sat at 47.6 in December. (Source: “Manufacturing Remains in Contraction,” Markit … Read More


What the Worst Start to the Year for the Stock Market Since 2005 Means

By for Daily Gains Letter | Jan 17, 2014

2014 Trading Begins Worse Than 2005Out of the first seven trading days of 2014, the S&P 500 declined on five of those days, marking the worst start to the year for the stock market since 2005. This phenomenon has raised many questions. Looking at this, investors are asking how the returns on the S&P 500 will look this year. Why? Because in 2005, the S&P 500 only increased by 2.87%.

In 2005, the months of July and November were good for the S&P 500; the index increased by more than 3.5% in each of those months. On the other hand, January, March, and April were the worst-performing months that year. In these months, the S&P 500 declined by more than two percent. (Source: StockCharts.com, last accessed January 15, 2014.)

Will the S&P 500 follow the same trajectory in 2014 as it did in 2005?

As it stands, I believe the S&P 500 may perform worse than it did in 2005. As I’ve mentioned in these pages many times before, there are many factors that are leading me to believe this can happen; for example, we are seeing a surge in optimism towards stocks—stock advisors are the most bullish they’ve been since the last market sell-off. As well, the U.S. economic growth isn’t really surprising when you look much deeper into the details, and most importantly; the Federal Reserve has announced that it will start to reduce its asset purchases (quantitative easing). When combined, these phenomena could bring the S&P 500’s performance down this year.

Regardless, you have to keep one of the most important lessons of investing in mind: don’t predict tops and bottoms. The … Read More


Bears Becoming Bulls En Masse as Optimism Rises

By for Daily Gains Letter | Jan 15, 2014

Bears Becoming BullsIncreasing optimism is dangerous for key stock indices. Sadly, this is exactly what we’re seeing in the markets right now. It is very evident wherever you look. Stock advisors are saying, “Just buy stocks, and you will do alright.” Investors feel good about stocks. Those who were bearish on the key stock indices since the crash in 2008 and 2009 are also turning bullish—the bears are declining in numbers each week; it’s becoming especially difficult for them to keep their pessimistic stance these days.

One of the key economic indicators that I follow when looking at the optimism in key stock indices is called the Chicago Board Options Exchange (CBOE) total options put/call ratio.

This indicator, at the very core, shows the ratio of volume of puts and call options. When there are more call options, this ratio stands below one. When there are more put options than call options, the ratio stays above one. Currently, this ratio stands at 0.6—a level last seen in 2011. Since at least 2007, this ratio of call options to put options has reached this level only a handful of times, as you can see in the chart below.

CBOE Options Put-Call Ratio Chart

Chart courtesy of www.StockCharts.com

When call options increase, it means investors are bullish towards the key stock indices. When the put options increase, it means investors believe the key stock indices will experience pressures ahead. The current put/call ratio suggests investors are not worried.

Another indicator I look at to assess the optimism on key stock indices is margin debt—the amount of stock purchased on borrowed money. When margin debt is high, this shows that … Read More


How to Play Seasonal Anomalies for Profit

By for Daily Gains Letter | Jan 13, 2014

Anomalies for ProfitAs all investors know, no two equities march to the same drum. This would then mean that, technically, it should be impossible to predict future returns based on readily available information. However, this might not be entirely true, as it turns out there may be something to be said for some seasonal investing patterns after all.

First off, when it comes to gathering statistics, there’s no better place to look than the stock markets. Monthly price data for equities on the New York Stock Exchange (NYSE) goes back to the early 1900s and data from the other indices goes back to their infancy. So it’s possible to gather objective data and weed out irregularities.

One of the most popular investing seasonal anomalies is the “January effect,” which really runs from late December to at least the end of February. The January effect theorizes that small-cap U.S. stocks have a history of outperforming the S&P 500.

The January effect was first observed by investment banker Sidney B. Wachtel and published in his paper “Certain Observations on Seasonal Movements in Stock Prices,” which appeared in The Journal of Business of the University of Chicago in 1942. In his paper, Wachtel shows that since 1925, small-cap stocks have outperformed the broader market in the month of January. (Source: Wachtel, S.B., “Certain Observations on Seasonal Movements in Stock Prices,” The Journal of Business of the University of Chicago April 1942: 15 (2); 184–193.)

Why is this? Most analysts theorize that tax-loss selling ramps up near the end of the year, when investors sell losing positions. Larger stocks can absorb the hit—but smaller stocks, not … Read More


This Cheap Sector Set to Outperform in 2014

By Sasha Cekerevac for Daily Gains Letter | Jan 7, 2014

Outperform in 2014With the new year just beginning, many investors will begin looking at their portfolio and trying to figure out how to shift their investment strategy to include sectors that should outperform in 2014.

One investment strategy I like to use during the beginning of the year is to look for a situation where fundamentals are improving, but market sentiment remains weak.

At year-end, many times you will see tax loss selling occurring. Essentially, investors are selling those holdings that have gone down the most to crystallize the losses for tax purposes. This also presents an opportunity—if the long-term investment strategy is sound.

One sector that has been hit hard is the precious metals sector. This should be no surprise to many readers, as the sell-off in precious metals has gotten a lot of negative media attention. However, I would like to bring to your attention an investment strategy of looking to add industrial precious metals, such as platinum and palladium, to your portfolio.

The vast majority of demand for both platinum and palladium is for industrial purposes, especially for catalytic converters in the automobile industry. These precious metals are crucial for the production of vehicles, and demand in this sector continues to rise.

While total vehicle sales for the full year of 2013 aren’t in yet, it is expected that U.S. auto sales will be the highest in six years, with an approximately 50% jump from the lows experienced in 2009. In 2014, U.S. auto sales will continue to be strong, with an estimated total number of over 16 million units sold.

The investment strategy in these industrial metals is … Read More


Economic Indicators Pointing to Weaker Growth in 2014

By for Daily Gains Letter | Jan 6, 2014

Economic IndicatorsIf the stock market is an indicator of U.S. economic health, then 2013 was a stellar year. The Dow Jones Industrial Average closed out 2013 with a 26% gain. The S&P 500 was up 29%, while the NASDAQ Composite was up 34%.

Despite a stellar 2013, the crystal ball for the U.S. economy and Wall Street in 2014 remains murky. That’s because investors might have to actually consider the health of the U.S. economy this year. Now granted, the U.S. economy kicked into high gear last January after the federal government avoided the dreaded fiscal cliff. Thanks to some recent economic indicators, the start of 2014 has been more subdued.

Factory activity in China hit a three-month low in December. While Germany and Italy reported healthy manufacturing numbers, British manufacturing growth eased and France hit a seven-month low of 47.0 (scores below 50 indicate contraction). Here at home, the U.S. economy got a boost after it was announced that manufacturing hit an 11-month high in December of 55.0, up from 54.4 in November. (Source: Weisenthal, J., “This Manufacturing Report From France Is Just Plain Ugly,” Business Insider, January 2, 2014.)

To show it believes the U.S. economy is improving, the Federal Reserve recently announced that it will begin to taper its quantitative easing efforts this month. Instead of pumping $85.0 billion per month into the U.S. economy, it is going to purchase just $75.0 billion in bonds.

And to quell investors’ fears, the Federal Reserve said it will continue to keep interest rates artificially low until the unemployment rate hits 6.5% or lower—a target that probably won’t be reached until … Read More


Two Key Steps to Stock Market Success in 2014

By for Daily Gains Letter | Dec 19, 2013

Stock Market Success in 2014This year, Christmas will bring joy to many investors with the stock market now nailing gains in excess of 30% for the NASDAQ and Russell 2000. Even if you are a more conservative investor buying DOW and S&P 500 stocks, your wallet still got bigger.

What has surprised me this year has not been the advance as much as the ability of the stock market to avoid a sizable stock market correction. The S&P 500 retrenched about 6.5% in May and June after the Federal Reserve first uttered the word “taper.” Yet the downcast mood didn’t last that long, as traders quickly entered the market and bought on the weakness. This has largely been the pattern this year, where any sign of weakness was followed by buying.

S&P Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Now I’m not a pessimist, but I do believe in market adjustments along the way. At the beginning of the year, I predicted the stock market would move higher, but not at the rate and size we saw. Maybe a 15% upside, but definitely not 30% plus.

Record after record, the stock market appears to be looking to higher ground. I remain bullish at this time, especially if consumers decide to up their spending. Yet there’s still the lack of revenue growth in corporate America that hopefully could correct itself as we move into 2014.

At this point, you really should look to realize some profits, especially on your big winners, prior to the year-end tax season. To counter some of the gains, I suggest you also divest some of your dogs in your portfolio. Look, we all make … Read More