Daily Gains Letter

Federal Reserve


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


Investing in a Post-QE3 Market

By for Daily Gains Letter | Oct 31, 2014

Investing in a Post-QE3 MarketThe Federal Reserve made it official on Wednesday, announcing it would be cutting the remaining $15.0 billion from its monthly bond-buying program, also known as QE3.

So with that, the period of easy money flowing into the pockets of investors is over. Remember, it was the Federal Reserve’s relaxed easy monetary policy that helped to drive the S&P 500 up nearly 200% since 2009—and now it’s over, folks.

The stock market reacted with stocks heading lower, as there was a slight sliver of hope the Federal Reserve would decide to hold back on eliminating QE3. Investors will now have to deal with bond yields that could begin to move higher on the Federal Reserve’s move.

The Federal Reserve didn’t give a timeframe for when interest rates will begin to move higher from their near-zero levels, but the consensus is calling for the rate increase to begin sometime in mid- to late 2015. As you know, higher rates by the Federal Reserve will drive up yields and carrying costs for both companies and personal debt. Just think about the more than $17.7 trillion in national debt and how the higher interest rates will impact the government’s out-of-control carrying costs.

We are at what I would call a crux.

Stocks want to go higher but need a fresh catalyst to do so. The advance reading of the third-quarter gross domestic product (GDP) growth came in at a healthy annualized growth rate of 3.5%, which while down from the booming 4.6% in the second quarter, is nonetheless indicative that the economy is expanding.

At the end of the day, a strong economy, continued … Read More


Why You Need to Stick with the Big Guys Right Now

By for Daily Gains Letter | Oct 17, 2014

Proven Companies the Place to Be at This TimeFor investors in small-cap stocks, this year has been quite a different experience from 2013, when the sector was raging and sizzling on the price charts.

Small-cap stocks are the laggards this year, with the benchmark Russell 2000 down nearly 14% from its peak and established in a bear market. The selling may be somewhat extreme at first glance but consider that the Russell 2000 surged an excessive 33% in 2013.

The reality is that gains like what we witnessed in 2013 were unwarranted; they were driven solely by the easy monetary policy put forth by the Federal Reserve and excessive froth in the stock market. We are now paying for the euphoria small-cap stocks encountered in 2013.

Now, while I continue to feel small-cap stocks are excellent longer-term plays, the short-term looks weary, given the technical breakdown on the chart of the Russell 2000.

Dumping higher-risk small-cap stocks is clearly the line of attack this year. But if the economic renewal holds into 2015 and the global economy doesn’t tank, we could see small-cap stocks rally next year. Keep this thought in mind, but know that at this time, it’s safer to shift your money to the large-cap or blue-chip stocks that have been battered this year.

Buying mature, consistent large-cap stocks on weakness makes sense as these companies have proven themselves to be steady players over time.

Think about it this way: Small companies will tend to struggle if the economy declines. Compared to the larger companies that can deal with several quarters or even years of underperformance, small-cap stocks would have a much more difficult time.

For … Read More


How to Play America’s Widening Income Gap

By for Daily Gains Letter | Oct 1, 2014

America’s Widening Income GapWhen it comes to America’s income levels, we continue to be a nation of haves and have-nots—the latter being the majority. There are about 48 million Americans collecting food stamps and many more are struggling to pay rent and put food on the table. In fact, we are now also seeing once-middle-class families going to food banks.

The government wants you to believe all is great, but that’s not true for everyone. Jobs are being created, but the majority are low-income service jobs that don’t require higher-level education. Yet highly educated workers are taking jobs that are far below their skill group and experience just to make ends meet.

As you all know, the income gap between the upper end—or the one percent—and the bottom end has been widening for years, if not decades.

The median family income declined to an inflation-adjusted $45,800 in 2010, compared to $49,600 in 2007, according to the Survey of Consumer Finances published by the Federal Reserve. The survey also suggested the top 10% of households made an average income of $349,000 in 2010 and had a net worth of $2.9 million.

Going back to 1962, the top one percent of income earners had a net worth of 125-times the median household income, according to the Economic Policy Institute. More recently, the gap surged to around 288-times the median household income in 2010 and is likely much worse now given the five-year bull market that has produced many new millionaires and has driven up the worth of the top one percent.

There is very little help for the financially unfortunate. Banks don’t care about this … Read More


Banks a Better Play Than Market-Leading Tech Picks?

By for Daily Gains Letter | Sep 26, 2014

Bank Stocks Are Now Looking Good for InvestorsWhile it’s well known that technology has led the broader stock market higher, there is a safer and more conservative play for investors at this time, according to my stock analysis. Where? Investors may want to take a glance at the banking sector.

Banks have dug themselves out of the financial crater that was imposed on the group by the sub-prime debt crisis back in 2007, which sent the global economy and banks into a massive tailspin, as is well represented in my stock analysis.

But that was then. As my stock analysis indicates, the banking sector has been rallying over the past seven years, beefing up their balance sheets, cutting risk, and creating a much stronger overall structure.

The chart of the Philadelphia Bank Index below shows the upward move of bank stocks from their 2009 and 2011 bottoms. Bank stocks staged a nice rally, but retrenched from March to May 2012 on the European bank concerns and Moody’s downgrade of the sector. However, the group has since staged a rally back to above the index’s 50- and 200-day moving averages (MAs), as my technical stock analysis indicates.

Bank Index Chart

Chart courtesy of www.StockCharts.com

What has helped to drive the banks upward on the charts, based on my stock analysis, has been the recovering global economy and the rules set in place to help prevent excessive risk among bank stocks. At the core of the changes was the establishment of the “Volcker Rule,” which was economist and ex-Fed chairman Paul Volcker’s move to cap the speculative trades and risk banks are allowed to assume. Since these changes were put in place, … Read More


Market Risk Rising; Where to Invest for the Best Potential Return

By for Daily Gains Letter | Sep 24, 2014

Market Risk RisingDon’t let the new records by the Dow Jones Industrial Average and S&P 500 trick you into thinking everything is fine in the stock market.

Just take a look…

We have the rising military actions against ISIS in Syria and Iraq that involve five Arab countries, which could really increase the geopolitical risk worldwide.

China is continuing to deliver muted economic results and suggested there would be no additional monetary stimulus at this time. Meanwhile, the slowing in the eurozone and Europe, given the economic sanctions on Russia, will impact the demand for Chinese-made goods.

And while the domestic economy is holding, the Organisation for Economic Co-operation and Development (OECD) recently cut its gross domestic product (GDP) growth estimates for the United States to below two percent this year.

The Federal Reserve is helping to support the stock market via the likely extension of its near-zero interest rate policy into mid- or late 2016, but this will help only so much.

The stock market risk is evident on the charts.

Technology and small-cap stocks are attracting the most selling, with investors dumping high-beta stocks as overall stock market risk rises.

The small-cap Russell 2000 lost 1.6%, moving back below its 50-day and 200-day moving averages (MAs) on Monday. The index is now down nearly four percent in September. Considering the risk, I would be careful when looking at small-cap stocks in the stock market at this time.

Technology is also at risk in the stock market despite the NASDAQ continuing to lead the major indices this year with an advance of close to nine percent. Higher-beta stocks are generally the … Read More


Interest Rates: Why They’re Not Headed Up Anytime Soon

By for Daily Gains Letter | Sep 22, 2014

Fed’s Plans for Interest Rates Could Be Investing AdviceThe Federal Reserve has spoken and to no one’s surprise, there was really nothing new from Fed Chair Janet Yellen, who did as was expected after shaving off another $10.0 billion in monthly bond purchases. The Federal Reserve will cut the remaining $15.0 billion in October, bringing its third round of quantitative easing (QE3) to an end.

What the stock market here and around the world also heard was that the Federal Reserve will likely maintain its near-zero interest rate policy for a “considerable time” after the QE3 cuts.

The problem is that the stock market is focusing so much on when interest rates may begin to ratchet higher.

The consensus is calling for rates to move higher by mid-2015, but some feel it will not happen until 2016 if the economic growth stalls. The downward revisions in gross domestic product (GDP) growth around the world could extend the time before the Federal Reserve will raise interest rates.

In the eurozone, the European Central Bank (ECB) is adding more monetary stimulus to jump-start the economy that is faltering due, in part, to the mess in Ukraine.

The news release from the Federal Reserve says the economic growth is moderate but also warns the labor market still has work ahead of it, which appears to be the main focal point.

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate,” read the press release by the Federal Reserve. “In determining how long to maintain the current 0 to 1/4 percent target range for the federal … Read More


How to Hedge Against a Stalling Global Economy

By for Daily Gains Letter | Sep 17, 2014

Stalling Global EconomyThe stock market charts are showing some hesitation once again following the recent technical breaks to new record-highs for the S&P 500 and Dow Jones Industrial Average.

On the charts, the blue chip DOW is back below 17,000. Its continued failure to hold after breaking above 17,000 for the fifth time is a red flag that suggests more weakness and vulnerability could be in the works for the stock market on the horizon.

Small-cap stocks are also subject to some selling again with the Russell 2000 declining to below both its 50-day and 200-day moving averages on Monday morning. The breach of the moving average is worrisome. The index will need to find support at current levels or risk a fall to the 1,140 level.

Here are the issues I see for the stock market at this time. While I still see potential higher gains ahead for the stock market, there are also some indications of a possible stock market correction around the corner.

You may be seeing targets for the S&P 500 rise, but I feel there could likely be some pausing and weakness ahead of this.

The surfacing of soft economic news for the global economy is a concern for economies worldwide, including the U.S. economy, and overall economic growth.

The European Central Bank (ECB) recently launched fresh stimulus for the eurozone. Clearly, this is needed. The Organisation for Economic Co-operation and Development (OECD) just cut its outlook for the eurozone’s gross domestic product (GDP) growth, revising it to a paltry 0.8% this year and 1.1% for 2015. Folks, this is weak and in my view, it indicates … 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


The Next Best Move for Investors

By for Daily Gains Letter | Aug 8, 2014

What Investors Need to Do NextIt’s time for some more handholding as we watch the stock market come under some selling pressure. But we’re not surprised, are we? The reality is that the advance of the stock market into its fifth year looks somewhat weary, given that interest rates will be rising in 2015.

Higher interest rates translate into higher bond yields, and that’s not conducive to a higher stock market. The current 10-year bond yield is a mere 2.45%, so it’s not an immediate concern. Yet looking ahead, interest rates will be heading higher, and this could come as soon as the first quarter of 2015, rather than the previous estimate of mid-2015.

The strength of the advance reading of the second-quarter gross domestic product (GDP) growth at an annualized four percent was clearly enough to send some investors to the exits. The fear is that if the upcoming readings are strong, it could signal higher interest rates sooner. Of course, we still have to wait for the third and fourth quarters of 2014 before making a snap judgment on when rates will head higher.

The Federal Reserve has already reduced its monthly bond buying to $25.0 billion, and it’s likely to be eliminated altogether by the Fed’s October meeting. This is a given. Higher interest rates are the issue for the stock market.

In addition, there’s some nervousness towards China and Europe. The reporting of a weaker-than-expected HSBC Services China PMI of 50.0 in July is scaring the stock market. A weaker China is not good for the global economy.

In addition, we also have a potential recession in Russia, which could have … Read More


How to Play the Strong GDP Growth

By for Daily Gains Letter | Aug 4, 2014

Strong GDP Growth Suggests a Move to BondsOn one hand, it’s great the economic growth is showing renewed progress as the advance reading of the second-quarter gross domestic product (GDP) growth came in at an annualized four percent, according to the Bureau of Economic Analysis. (Source: Bureau of Economic Analysis web site, July 30, 2014.)

Now I realize this is only the advance reading and things can change over the next few weeks as more credible estimates come into play, but I’m sure the Federal Reserve is keeping close tabs on the numbers. Investors are also likely quite nervous.

It appears that the weak showing in the first-quarter GDP was an aberration, driven by the extreme winter conditions. But the reality is that if the GDP continues to expand at this pace, we could see the Federal Reserve begin to increase interest rates quicker than expected in 2015.

The GDP reading saw gains across the board in consumption, investment, exports, imports, and government spending, which will catch the eye of the Federal Reserve.

We know the Federal Reserve doesn’t want to slow the economic renewal, but at the same time, it also wants to make sure inflation doesn’t rise too fast.

The report from the BEA pointed to the fact that the price index for gross domestic purchases used as a measure of inflation increased an annualized 1.9% in the second quarter, well above the 1.4% in the first quarter. Even when you take out the volatile food and energy components, the reading increased 1.7%, versus 1.3% in the first quarter.

And given that the jobs numbers continue to show progress with the unemployment rate standing at … Read More


Why This Company Will Fare Well as the Economy Stutters

By for Daily Gains Letter | Jul 28, 2014

My Investment Solution for Tight TimesIf you think Americans are firmly comfortable in the economy and jobs, think again. Yes, the stock market has returned strong gains and has been an investment opportunity over the past five years (since the end of the Great Recession in 2008), but much of it was artificially driven by the lax monetary policy put forth by the Federal Reserve. Now that the quantitative easing is dissipating and interest rates are set to edge higher sometime in mid-2015, I’m not all that comfortable.

The jobs numbers are improving, but they are still well below the 500,000 per month that some pundits deemed to be a sign of a healthy jobs market. We are generating about 200,000 jobs each month, which is well below what we want to see. In fact, we have only recovered the jobs lost during the recession—and we still need to build on that.

Given that there are still approximately 46 million Americans collecting food stamps, you’d understand why I still feel uneasy about the so-called economic growth in progress.

Consumers are still not spending at a rate many are hoping for. This is especially true in durable goods, which are not required for everyday living, so their buying can be bypassed.

As far as I’m concerned, the retail numbers still stink and don’t point to an investment opportunity in retail. Just take a look at the metrics at the big multinationals, such as Wal-Mart Stores Inc. (NYSE/WMT) and other retailers. While retail sales grow at a muted pace here, the growth is around 12% in China, where there is an investment opportunity in retailers.

Dick’s Sporting … Read More


The Red Flag I’m Seeing in Stocks Right Now

By for Daily Gains Letter | Jul 16, 2014

Why Massive Capital Infusion from Retail Investors Is a Red FlagIn my previous article, I talked about the vulnerability of stocks at this time, a disappointing economy, and what will likely be disappointing earnings.

On the weekend, I was thinking back to 2000, when the stock market came crashing down after a sizzling but unwarranted run-up in technology stocks and initial public offerings (IPOs). It wasn’t pretty, and while I don’t believe the stock market is priming for another major sell-off right now, I’m still nervous.

The DOW recovered to 17,000 on Monday, but if it fails to hold again, I would be wary. The failure of the S&P 500 to test 2,000 despite coming so close is also a red flag, based on my technical analysis.

Yet unlike 14 years ago, the current bull stock market, which is in its fifth year and looking weary, has largely been driven by the easy money the Federal Reserve has been pumping into the economy. The reality is that this third round of quantitative easing (QE3) will likely be dissolved by October and interest rates will be heading higher by mid-2015. As I said the other day, this will have a negative impact on the stock market.

In addition, the rising flow of capital into the stock market by retail investors is also a red flag that has generally been followed by selling in the past.

What you have are investors who have sat on the sidelines, waiting for a major stock market correction that really hasn’t materialized in five years. This group sees people making money in the stock market and decides they need to jump in with little regard as … Read More


What the World Cup and the Stock Market Have in Common This Year

By for Daily Gains Letter | Jul 14, 2014

How to Make Some Premium Income This SummerLast Wednesday, I had fun watching the World Cup game between Argentina and the Netherlands. As strange as it may sound, I actually found that the tension and apprehension throughout the match reminded me of the stock market.

Despite the Dow Jones Industrial Average recently trading above 17,000 and the S&P 500 at another record-high, I still sense the stock market is vulnerable to selling. I think this will be especially true if the second-quarter earnings season pans out as expected, devoid of any major growth in earnings or revenues.

Alcoa Inc. (NYSE/AA) offered up a nice report, but I’m not sure how much it counts, as the company really is not a major bellwether as to the health of the global economy.

The reality is that consumer spending drives the economy and the stock market. I would rather look at what’s happening at bellwether global retailer Wal-Mart Stores Inc. (NYSE/WMT) than Alcoa. The “Death Star” of the retail sector is struggling for growth around the world—and that cannot be good news. Even discount stores, which tend to be more immune to slowing, are showing signs of weakness.

In other words, while the stock market has edged higher, I still wouldn’t get too comfortable at this time. I think we could see another minor stock market correction should earnings tank. Of course, this would provide us with an investment opportunity to buy shares on weakness in the stock market.

Now there’s some optimism following the Federal Reserve’s dovish remarks from its June meeting, as there’s a sense that interest rates will not ratchet higher until after mid-2015, depending on the … Read More


Getting Ready for the Stock Market’s Coming Bumpy Ride

By for Daily Gains Letter | Jun 27, 2014

Four Ways to Prepare for the Bumpy Ride Ahead in StocksThe S&P 500 traded at an intraday record on Tuesday, but it’s not time to relax and take it easy, as was the situation for the past few years since the Great Recession.

It’s time for some hand-holding again. While the broader market has edged higher, I continue to see some nervousness and selling pressure in the small-cap and growth elements of the stock market. The Russell 2000 is holding above its 200-day moving average (MA), but it’s tenuous.

As has been the case in the past years, the direction of the Federal Reserve is helping to support the stock market. Since taking over for the former Fed chairman Ben Bernanke, Janet Yellen appears to be just as, if not more, dovish than her predecessor, and this pleases the stock market.

The reality is that the Fed has said it will likely not begin to increase the historically low interest rates until sometime in 2015, and even then, it will likely only be a small increase. The central bank wants stronger jobs creation and economic growth.

The disastrous first-quarter gross domestic product (GDP) contraction of 2.9% was horrible despite blaming some of the poor results on the winter. A closer look shows declines on spending across the board that negatively impacted the GDP growth. The contraction in durable goods spending in May also supports the continued fragility in the economy and stock market.

The problem is that investors have minimal options for investing compared to the stock market. While the risk is prevalent, it’s clear investors are willing to assume some of the risk, but not to the same degree … Read More


Why I Believe This Market Is Heading Higher—For Now

By for Daily Gains Letter | Jun 11, 2014

Why Stocks Are Heading HigherThis is a stock market that continues to want to move higher despite the lack of any major catalyst.

Sure, the economy is “recovering,” but there are still issues with consumer spending, especially on non-essential durable goods. The headline durable orders reading came in at 0.8% growth in April, above the consensus 1.3% decline but below the revised 3.6% growth in March. For the economy to really confirm the stock market, we need to see growth here. This will also help to drive buying in small-cap stocks that trade with the economy.

The jobs scene is finally beginning to look better since the Great Recession in 2008. Jobs creation came in above 200,000 for the fourth straight month. The unemployment rate held at 6.3%. With the latest batch of jobs numbers, the economy has now recovered all of the 8.7 million jobs lost during the recession. The Federal Reserve will likely refrain from raising interest rates until sometime in mid-2015, but continue to cut its bond buying to zero by year-end.

The fact there’s really a lack of investment alternatives to the stock market is helping. With the yield on the 10-year bond at around 2.5%, I doubt investors or institutions are rushing to buy. Why would you when you can buy higher-yielding dividend paying stocks with capital upside?

The renewal in the global economy is also helping. China hasn’t sunk into the economic abyss as some pundits have been predicting. Its neighbor Japan is finally showing signs of economic growth following decades of doing little. Like the United States, Japan is spending its way to recovery. The country’s first-quarter … Read More


How You Could Still Profit from Gold Despite Weakness

By for Daily Gains Letter | Jun 4, 2014

Why You Still Stand to Gain from GoldWith money continuing to flow into the equities market and stocks, the gold market has seen an outflow of capital. The Ukraine situation appears to be under control, and with minimal geopolitical influences, the yellow metal has failed to gain any catalyst to move higher.

The prices paid for goods and services, as measured by the Consumer Price Index, are under wraps, despite rising food and energy prices. The headline reading, including these two volatile items, jumped two percent in April in urban areas, which was the highest reading in 2014, matching the highest readings in 2013. Right now, inflation is not a major issue, but it could become more of a factor as we move forward.

Moreover, we all know that the Federal Reserve is expected to eliminate its entire bond purchases by the year’s end, which will likely drive bond yields, interest rates, and the U.S. dollar higher. The result would be a stronger U.S. dollar and pressure on gold prices.

And as I previously mentioned, there’s still broad interest in the stock market, which will impact the buying in the yellow metal. Investors are continuing to look for returns, and at this time, that isn’t gold.

The gold story is a non-factor at this moment, and I think the best gains are behind us for the time being, as the precious metal traded at around $300.00 in 2002 and reached its highs in 2011. The long-term chart below shows the yellow metal in a decline.

Gold - Spot Price (EOD) Chart Chart courtesy of www.StockCharts.com

The reality is that there’s simply no attraction in buying the yellow metal at this point, in spite … Read More


How to Safeguard Your Portfolio from the Coming Housing Crisis

By for Daily Gains Letter | May 22, 2014

Housing Market Fragile Despite Above-Average Potential HomebuildersThe housing market has enjoyed a boom that’s lasted several years as prices have ratcheted upward toward the 2008 highs, prior to the subprime mortgage meltdown. Now, while the housing market has been fairly steady with above-average price appreciation potential in homebuilder stocks, I still think we could be headed for some issues on the horizon.

Some would argue that the housing market is coming off a strong April, with the housing starts reading at 1.07 billion, well above the consensus 975,000 and the 947,000 in March. Building permits, which are an indicator of demand down the road, were also strong at 1.08 billion, compared to the 1.0 billion consensus estimate and March’s 990,000.

While the readings look pretty good, a deeper look into the housing market suggests we could be headed for a housing crisis down the road. Mortgage rates are rising, which is affecting demand in the housing market. Higher mortgage rates also hurt those looking to renew their mortgages, especially those who are already really tight with payments.

The Federal Reserve created an artificial marketplace of low mortgage rates by buying bonds and mortgages over the past few years, but that is, of course, changing, as the central bank moves towards eliminating all of its monthly bond purchases. The result will be higher mortgage rates in the housing market down the road, especially as interest rates begin to rise in 2015. Trust me when I say that this will hurt the housing market.

A report by real estate firm Zillow is foreshadowing the potential problems to come in the housing market. According to the company, the so-called … Read More


Three-Year Home Price Rally a Half-Truth?

By for Daily Gains Letter | May 15, 2014

Why the Housing Decline Is No SurpriseHousing prices were shooting up since 2011, as if a downslide would never return to the housing market. Meanwhile, my colleagues and I warned investors of a slowdown in activity that could jeopardize the housing market. The authorities at the Federal Reserve then were confident of an economic recovery and took increasing housing prices as a bellwether of economic progress.

During the last winter, home sales declined sharply and everything was blamed on the frigid temperatures, implying the housing market would grow once the season was over and done with. When I last wrote about the U.S. housing market, I noted why it was going to be a big disappointment—this was the time when the majority of investors anxiously waited for the spring tide to kick in, so they could compensate for revenues lost during the winter.

The Federal Reserve, too, was confident of a rebound in the housing market at the turn of the season, but since that never happened, it compelled Fed Chair Janet Yellen to come out last week and mention what we have been predicting in our previous issues. Although she provided an upbeat outlook on the overall economy, her major concerns hovered around the housing market, which she now feels is a bit of a red flag. (Source: Kurtz, A., “Janet Yellen’s Big Concern: Housing Slowdown,” CNN Money web site, May 7, 2014.)

Investors generally overlook hidden numbers in the markets and invest on superficial data that surface in the news headlines of the financial dailies. While following the news might not be that bad of an idea, sometimes, the easily available data can lure … Read More


How to Profit 10X the Rise in Bond Yields

By for Daily Gains Letter | Apr 28, 2014

Interest Rates Bond Yields Heading Higher ProfitWhile I continue to favor the stock market as the top investment vehicle long-term, I am concerned about the pending rise in interest rates and bond yields; of course, higher bond yields translate into a viable option for investors to stash their capital aside from the stock market.

The Federal Reserve has begun the process that will reduce the easy money it has been injecting into the stock market and economy. So far, $30.0 billion in bond purchases each month has been cut, and I expect the remaining $55.0 billion to be eliminated by the year-end.

The end result will be a steady rise in bond yields along the way, which will cause some rotation of capital from the equities market to bonds. We have already seen a big jump in the 10-year bond yield, from about 1.7% in May 2013 to 2.8% as of April 2014. The yields will continue to rise as the Fed reduces its quantitative easing over the year. A move to above the three-percent threshold level will clearly trigger some anxiety among stock investors

The consensus on the Street is for bond yields to rise. The recent auction of $29.0 billion of seven-year notes by the U.S. Department of the Treasury last Thursday yielded 7.317%.

Simply look at the chart below of the 10-Year US Treasury Yield Index from 1990 to 2014.

10- Years US Treasury Yield ChartChart courtesy of www.StockCharts.com

The first thing you should notice is the rising yields. The chart from 2012 onward reflects the rise in interest rates measured by the bellwether 10-year U.S. Treasury that is surging higher. The yields on U.S. Treasuries have almost … Read More


How Last Week’s Mini Rally Is Reshaping My Investment Strategy

By for Daily Gains Letter | Apr 21, 2014

Mini Rally Means for Your Investment StrategyThe stock market staged a minor rally last week, but don’t get too excited yet; the buying support was largely triggered by a technically oversold market, rather than solid fundamentals or a fresh catalyst.

What I can say is that investors need to be careful with the high-beta stocks that are extremely volatile at this time and vulnerable to downside selling.

Just because momentum surfaces, it doesn’t mean the risk is dissipating. It’s simply an oversold bounce that could continue or falter again.

The fact that the Dow Jones Industrial Average and S&P 500 recovered their 50-day moving averages (MAs) last Tuesday is positive, but it doesn’t mean the worst is over.

I see the NASDAQ and Russell 2000 were still down more than seven percent as of last Wednesday and below their respective 50-day MAs. In fact, the Russell 2000 is within reach of testing support at its 200-day MA. This time around, we could see a bigger stock market correction, based on my technical analysis.

Until we see some sustained calm return, there could be continued selling pressure in the stock market, especially with the smaller high-beta stocks and large-cap momentum plays.

The most critical point to understand is that you need to preserve your capital base. The reality is that avoiding a loss is just as good as making profits. Imagine letting a losing trade run and before you realize it, the position is down 20%, 30%, or more.

This is especially true with the small-cap stocks. Making up ground following a major downside move is not easy. For instance, say you have a $10.00 stock and … Read More


Three Variables to Consider Before Investing in Gold

By for Daily Gains Letter | Apr 16, 2014

Three Reasons I Believe Gold Is Only for Traders Right NowWhile there continue to be many gold bugs out there, I’m not one of them—but I do see gold as a trading opportunity.

Given what we have seen so far and looking ahead, I just don’t see gold as a buy-and-hold strategy at this time. Yes, there’s money to be made, but it’s going to be for traders only.

The recent break below $1,300 an ounce and the subsequent rally to the current $1,325 level is an example of such a trade, not a new trend that’s developing on the charts, based on my technical analysis. The chart below shows the potential declines in the metal towards $1,200 and $1,100 an ounce.

Gold Spot Price ChartChart courtesy of www.StockCharts.com

Many gold supporters will counter that China is hoarding gold and India will soon pick up its buying. While I don’t argue against this, I just don’t see the yellow metal retaining its luster at this point unless a war breaks out in Ukraine and Russia intensifies its threat. If this should happen, it would drive Russia’s gross domestic product (GDP) growth lower and could result in the fragile eurozone and European economies retrenching back into a recession that just ended.

I wrote about gold several weeks back as a trading opportunity on dips below $1,300. I continue to hold on to that belief, but longer-term, the yellow metal could fade and fall back towards $1,200 or less.

My thinking is that inflation is nowhere to be seen in the United States, China, or Europe. (In fact, deflation may be more of a concern here.) And unless inflation picks up, the yellow metal isn’t … 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


Why a Soft First Quarter Offers Hope

By for Daily Gains Letter | Apr 3, 2014

Silver LiningThe first quarter, by all accounts, was a dud, especially if you were invested in blue chip stocks as the Dow Jones Industrial Average retracted 0.74% in the quarter.

Yet March also saw some shifting of capital from higher-risk assets into blue chips and large-cap stocks, as the NASDAQ and Russell 2000 underperformed with declines of 2.53% and 0.83%, respectively.

But the muted gains in the first quarter do offer some hope heading forward, especially if the stock market can attract some leadership and if the economic outlook and jobs numbers can improve. For instance, the S&P 500 led the way in the first quarter with a 1.32% advance (or a 5.28% advance on an annualized basis). By comparison, in 2013, the index had already surpassed this level of advance by March.

Given the muted results to date, we could see much better gains in the quarters ahead, but much will depend on several variables that currently cast a cloud over the stock market.

First, the Fed is continuing to cut its quantitative easing and the consensus is that the bond purchases will dwindle to zero by year-end. While this is discounted by the stock market, traders are more concerned about when the Federal Reserve will begin to increase interest rates. The early thoughts are for rates to rise sometime in the first half of 2015.

Yet Fed chairwoman Janet Yellen gave the stock market a lift on Monday after suggesting the central bank would do whatever is necessary to make sure the economic renewal and jobs growth continue unabated. Now, this could imply that the bond buying could continue … Read More


Three Ways to Combat a “Recovery” That Even the Fed Says

By for Daily Gains Letter | Apr 2, 2014

Federal ReserveFederal Reserve Chair Janet Yellen confirmed what we’ve been espousing in these pages for the last couple of years—that the so-called recovery feels an awful lot like a recession for most Americans.

Addressing a crowd in Chicago, the head of the Federal Reserve said the U.S. jobs market is still underperforming and will continue to need the help of an artificially low interest rate environment “for some time.”

Investors were, as you can imagine, afraid the Federal Reserve was going to raise short-term rates. A rate hike would elevate borrowing costs and pull the rug out from under stock prices.

But instead, the Federal Reserve said it was committed to keeping interest rates low in an effort to stimulate borrowing, spending, and economic growth. The artificially low interest rate environment is a welcome sign for Wall Street—which essentially ended the first quarter of the year where it began.

By committing to keeping interest rates low, the Federal Reserve is ensuring a steady flow of money into the stock market…which cannot help but raise the already-bloated indices higher. The S&P 500 continues to trade near record-highs, as does the Dow Jones Industrial Average. Even the NASDAQ’s all-time high is, all things considered, within striking distance.

With the current bull market now in its fifth year—all is well in the U.S.A.! That is, if you’re one of the fortunate few to even realize we’re in a bull market. There are far too many weak underlying indicators to suggest we’re on a stable—let alone sustainable—economic footing.

For instance, the U.S. unemployment rate has improved from 10% in 2009 to 6.7% today. On the … 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


Three Silver Plays That Can Weather a Short-Term Downturn

By for Daily Gains Letter | Mar 27, 2014

Three Silver PlaysTechnically, the Federal Reserve’s job is to oversee the monetary policy (short-term interest rates) of the world’s biggest economy. Obviously, it does, but it’s also important to remember that its opinion and carefully chosen words also have a major impact on the global markets and world economies.

If the Federal Reserve says the U.S. economy is doing well, investors flood the markets. If, on the other hand, the Federal Reserve says the U.S. economy is having difficulty gaining traction, investors turn their attention to precious metals to hedge against a weak U.S. and global economy and inflation.

It’s worked like clockwork since the Federal Reserve stepped in to help kick-start the U.S. economy with its generous monetary policy after the markets crashed. During the first round of quantitative easing (November 25, 2008 to March 31, 2010), silver climbed 65%.

Sensing the economy was still unstable, the Federal Reserve initiated its second round of quantitative easing (November 3, 2010 to June 30, 2011), during which time silver climbed an additional 39%. In September 2012, the Federal Reserve commenced its third, open-ended round of quantitative easing. If history is any indicator, the third round of quantitative easing should have been a boon for silver—but it wasn’t.

Silver prices edged steadily lower over the ensuing months. In April 2013, The Goldman Sachs Group, Inc. famously trimmed its outlook for gold to $1,450 an ounce by the end of 2013 and $1,270 at the end of 2014. The company noted that the banking crisis in Cyprus didn’t have the expected positive effect on the price of gold.

Silver and gold prices fell lower in … Read More


Should You Be Prepared for a Bullish Run in Gold Bullion?

By for Daily Gains Letter | Mar 26, 2014

Bullish Run in Gold BullionAfter 12 years, gold bullion’s glorious bull run ended with a thud in 2013, retracing 30% and locking in the biggest annual decline since 1981. Many speculate that gold bullion prices melted in 2013 as investors tried to figure out when the Federal Reserve was going to be cutting its generous $85.0-billion monthly bond purchases.

Investors lean toward gold bullion and other precious metals as a hedge against both a weak U.S. dollar and inflation. A tapering of the Federal Reserve’s monetary policy suggests that the U.S. economy is getting stronger. While there was no real sign of sustained economic strength in 2013, just the idea that the Federal Reserve would have to start tapering at some point was enough to send gold bullion prices lower.

That coupled with a strong—but misguided—run on the S&P 500 also helped push gold bullion prices lower. I say “misguided” because quarter after quarter, more and more companies on the S&P 500 revised their earnings guidance lower. At the same time, companies masked their weak earnings and revenues with cost-cutting measures and near-record-high share repurchase programs.

That came to a crushing halt at the beginning of 2014, when the Bureau of Labor Statistics reported abysmal January payroll figures. Instead of adding the forecasted 196,000 jobs—the U.S. economy added just 74,000.

Weak January payroll data coupled with political tension in Ukraine helped send gold bullion prices higher. Between the beginning of January and the middle of March, gold bullion prices rebounded, climbing 15% year-to-date to around $1,390 per ounce.

The bullish run in gold bullion didn’t stop the bears from warning investors to avoid the … Read More


S&P 500 Approaching Inflection Point; How to “Insure” Your Portfolio

By Sasha Cekerevac for Daily Gains Letter | Mar 26, 2014

Stock Market's Volatile ShiftsThe winds are changing, my friends. For most of the past year, each time the S&P 500 sold off, it was a buying opportunity. I think we are at an inflection point this year, as we all know nothing lasts forever.

I believe it all began to emerge last week with the Federal Reserve meeting. As long-time readers know, over the past couple of months, I’ve been warning that once the Federal Reserve begins to adjust monetary policy, this will have a negative impact on the S&P 500.

With the Federal Reserve continuing to reduce its asset purchase program, investors are now calculating the length of time until it’s no longer. The reason for distress in the market is that Federal Reserve Chair Janet Yellen announced a tentative six-month timeframe upon completion of the asset-purchase program that the Federal Reserve will begin increasing short-term interest rates.

Why the concern?

Taking a quick look from several angles, this transition won’t be smooth. To begin with, there’s the old saying on Wall Street: “Don’t fight the Fed.” It is obvious that the Federal Reserve is dead set on reducing monetary stimulus and raising interest rates.

Very rarely does the S&P 500 increase during a period of monetary tightening. This is not to say that the S&P 500 will drop tomorrow; the Federal Reserve is continuing monetary easing for the moment. But investors in the market should be aware that once the Federal Reserve begins changing its monetary stance, the S&P 500 will be affected.

Another concern is that economic growth in America isn’t exactly on fire. While it’s true that we aren’t … Read More


What’s Handicapping First-Time Homebuyers?

By for Daily Gains Letter | Mar 24, 2014

First-Time HomebuyersFor months and months now we’ve been pointing to seemingly obvious economic data to prove that the U.S. housing market is in trouble because of the weak U.S. economy. Those in the “know”—economists and the real estate board—have been waxing eloquence on how the weather is the main culprit behind the disappointing U.S. housing market numbers.

The National Association of Realtors (NAR) said existing-home sales in December were adversely affected by bad weather in many areas. Sales of existing homes in January were down 5.1%, reaching their lowest levels in 18 months. At the time, the NAR echoed it’s sentiment from the previous month and said the prolonged winter weather was playing a role and positive housing market activity would be delayed until spring.

Well, spring has sprung, and it looks like blaming the weather is getting a little old. Existing-home sales in February fell 0.4% month-over-month and 7.1% year-over-year to their lowest level since July 2012. (Source: “February Existing-Home Sales Remain Subdued,” National Association of Realtors web site, March 20, 2014.)

First-time homebuyers, the litmus test for how well the economy is doing, accounted for 28% of purchases in February—that’s up from 26% in January (which was the lowest market share since the NAR first started compiling monthly data). In February 2013, first-time homebuyers accounted for 30% of sales. The 30-year average for first-time homebuyers is 40%—a number both real estate professionals and economists consider ideal.

As per usual, the U.S. housing market is being propped up by those with lots of money. All-cash sales made up 35% of sales in February—up from 33% in January and 32% in … 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


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


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


An ETF to Boost Your Portfolio Whatever the Weather

By for Daily Gains Letter | Mar 7, 2014

Debt IncreasesDespite stagnant wages and increased borrowing, Americans ramped up their consumer spending in January. The United States Department of Commerce said earlier this week that consumer spending rose 0.4% in January versus a forecast of 0.2%. (Source: “Real Consumer Spending Rises in January,” Bureau of Economic Analysis web site, March 3, 2014.)

Unfortunately, January’s boost in consumer spending wasn’t as broadly based as many were hoping. Spending on durable goods, which include cars, fell 0.3%, while spending on non-durable goods, such as clothing and food, fell 0.7%.

Consumer spending on services increased 0.8%—the biggest jump in services since October 2001. The increase in services spending can be attributed to higher heating bills and more and more people signing up for Obamacare. In fact, without the 11.3% jump in utility bills, consumer spending would have essentially been flat.

For an economy that gets roughly 70% of its growth from wide-based consumer spending, these results are not spectacular.

The increase in consumer spending comes on the heels of a report from the Bureau of Economic Analysis that personal income levels climbed 0.3% month-over-month in January after remaining flat in December. (Source: “Personal Income and Outlays, January 2014,” Bureau of Economic Analysis web site, March 3, 2014.)

This is pretty much in step with consumer spending. But there is an economic disconnect happening. While consumer spending fuels economic growth in this country—if left unchecked, consumer spending can also help throw the economy off a cliff.

According to the Federal Reserve Bank of New York, at $11.52 trillion, overall consumer debt levels (including mortgages, auto loans, student loans, and credit cards) are at their … Read More


This One Factor Could Make or Break Your Portfolio

By for Daily Gains Letter | Mar 3, 2014

U.S. economyIncome inequality plays an important role in whether or not an economy experiences economic growth. If a small number of people earn the majority of the wages in a country, that sets the country up for a disastrous situation. What this essentially does is create a significant disparity. You can expect to see certain businesses do really well while others struggle severely, which is the result of those who are earning fewer wages spending less and those who are earning a significant portion spending more.

Sadly, this is what we see in the U.S. economy. Income inequality is increasing. It suggests economic growth is a farfetched idea.

According to a study by the Paris School of Economics, in the U.S. economy, the richest 0.1% earns nine percent of the national income. The bottom 90% of Americans—the majority of the population—only earn 50% of the national income. (Source: Arends, B., “Inequality worse now than on ‘Downton Abbey,’” MarketWatch, February 27, 2014.)

Former Federal Reserve chairman Allan Greenspan said, “I consider income inequality the most dangerous part of what’s going on in the United States.” (Source: Well, D., “Greenspan: Income Inequality ‘Most Dangerous’ Trend in US,” Moneynews, February 25, 2014.)

Income inequality in the U.S. economy is very evident, no matter where you look.

As I mentioned earlier, when there is income inequality in a country, you can expect certain businesses to do poorly. For example, consider Wal-Mart Stores, Inc. (NYSE/WMT)—one of the biggest retailers in the U.S. economy known for its low prices. Due to the U.S. government pulling back on its food stamp programs, the company is worried. The executive … Read More


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

By Sasha Cekerevac 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


Top Two ETFs for When Interest Rates Increase, Investor Sentiment Plummets

By Sasha Cekerevac for Daily Gains Letter | Feb 21, 2014

Top Two ETFsThis past weekend, a friend of mine made a statement that there must be a large amount of economic growth coming shortly because of the booming stock market, driven by investor sentiment.

As I told him, the two are not necessarily tied together.

Over the past few months, we have heard about how economic growth is about to accelerate here in America, and this has helped drive investor sentiment in the stock market higher. However, I think there are many questions that need to be answered before we can assume economic growth will reach escape velocity, and investor sentiment is heavily contaminated with a large addiction to monetary policy.

Some of the data has improved; however, many other reports only lead to murkier water.

For example, we all know that economic growth requires the consumer to be active, since consumption is approximately 3/4 of the U.S. economy. But for the holiday season, many retail companies issued disappointing results, even though there were signs that consumer spending was beginning to pick up. This is an interesting data point: during the fourth quarter of 2013, consumer debt increased by $241 billion from the third quarter, the biggest jump in debt since 2007. (Source: “Quarterly report on household debt and credit,” Federal Reserve Bank of New York web site, last accessed February 19, 2014.)

Should investor sentiment view this increase in consumer debt as a positive or negative for economic growth?

A large amount of the debt increase came from the automobile industry, but what really worries me that could impact future economic growth is the combination of higher debt with weaker retail … Read More


What to Consider Before Investing in These Two Lesser-Known Precious Metals

By Sasha Cekerevac for Daily Gains Letter | Feb 19, 2014

Precious MetalsI have been in this business a long time, and I believe that the best tactic is to combine as many positive factors as possible in order to have the highest probability of success.

There are essentially three main methods to look at; this includes fundamental analysis, technical analysis, and quantitative models. You don’t need every single category of analysis to be completed; you just need enough evidence from all to indicate whether or not a stock or index will move up or down. Obviously, there is no 100% guarantee, only a level of probability.

Taking a look at the precious metals market, over the past couple of months, there has been an increasing number of signals leading me to conclude that there is a good probability that precious metals will move up in price in 2014.

Two of these precious metals that have gotten me interested are platinum and palladium. The fundamental analysis in these precious metals includes determining the level of demand and supply globally.

The fundamental analysis of supply for these precious metals is quite interesting and sad, as protests and violence are escalating in South Africa. For those unaware, platinum and palladium are primarily extracted from South Africa and Russia. Any disruption in the supply from these regions will cause an adverse price reaction.

So far this year, there are more than 70,000 South African miners on strike who are looking for higher wages. There have been 10 deaths this year by protests demanding better living conditions. With the South African currency continuing to drop, inflation is rising, causing instability in their economy and the political … 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


How the Trend Is Changing for Silver

By Sasha Cekerevac for Daily Gains Letter | Feb 12, 2014

Trend Is Changing for SilverOne of the interesting things about investors is how so many become complacent over time. When precious metals like silver were rising steadily, more and more people jumped on the bandwagon. But times have changed.

With few people in the media talking about precious metals, I think it’s a good time to take a look at silver, as 2014 could potentially be a very strong year for the metal.

Obviously, we know that 2013 was a tough year for most of the precious metals, as investors began to believe that economic growth was going to accelerate globally. Over the last couple of months, it is clear that global economic growth is far from certain.

Uncertainty is an important component for the precious metals market, and we have seen silver react much more sharply than the other commodities, both to the upside and the downside.

As people become more uncertain, they look to assets that they believe can help protect their wealth. The emerging markets are getting hit badly, including Turkey hiking rates massively in one day, Argentina and Venezuela having serious issues, the Ukraine experiencing riots, and China now exhibiting signs of a slowdown in economic growth. Considering all of this, it’s no surprise that many people in nations around the world continue to accumulate precious metals, including silver.

An interesting note from last week made by the European Central Bank (ECB) president, Mario Draghi, in his comments following the central bank meeting is the possibility that there could be additional monetary stimulus (money printing) coming shortly.

With economic growth nowhere in sight in Europe, to have yet another central … 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


Why I Wouldn’t Give Up on This Stock Market Yet

By for Daily Gains Letter | Feb 6, 2014

Stock MarketAnother day and another 300-point decline in the Dow Jones Industrial Average—that seems to be the norm right now. But despite my assurances that things will inevitably get better, I continue to see extreme nervousness out there.

Now it’s probably time for more hand-holding as we move along during this mini crisis in the markets.

Look, the world isn’t going to blow apart. We are simply hoping through a stock market correction that should have occurred in 2013 but didn’t, largely due to the Federal Reserve’s easy money policy. That’s coming to an end as the tapering continues, but so what?

Based on the morning trading activity on Tuesday, the stock market, while edging higher, wasn’t exactly showing that it was firmly behind the buying; hence, it will likely be prone to more downside moves. My thinking is that we could receive another five-percent hit and then slowly rally.

The concern is that we could see more selling capitulation emerging on higher volume, so investors should be very careful.

The failure of the Dow to hold at its 200-day moving average (MA) is concerning.

Small-cap stocks were down nearly 10% at the close of Monday, nearing what would be an official stock market correction. Just watch how the Russell 2000 behaves going forward, focusing on whether it can hold and rally from here.

My assessment is that the stock market could likely move lower prior to staging a rally.

Of course, the release of a softer-than-expected ISM Index hurt and suggested the economy may not be as strong as the gross domestic product (GDP) growth would indicate.

The thing is … 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


Top Strategies for an Economically Engineered Market

By for Daily Gains Letter | Feb 3, 2014

Economically Engineered MarketBack in December, Bernanke decided the U.S. economy was on solid footing and initiated the first round of quantitative easing cutbacks to begin in January. Instead of dumping $85.0 billion into the U.S. economy, the Fed added just $75.0 billion.

Last Wednesday, in his final hurray as chairman of the Federal Reserve, Ben Bernanke initiated the second round of tapering. Citing growing strength in the broader U.S. economy, Bernanke slashed the Federal Reserve’s quantitative easing program to $65.0 billion a month starting in February.

At this pace, the Federal Reserve will be out of the bond buying business by Labor Day. As for interest rates, Bernanke reiterated the Federal Reserve’s guidance; short-term interest rates will remain near zero until the jobless rate hits 6.5%. But not even that is an automatic trigger. When unemployment does hit 6.5%, it will take inflation, the state of the labor market, and the state of the financial markets into consideration.

In light of the current U.S. economic environment, I’m not so sure I’d hang my hat on the so-called “growing strength in the broader economy.”

For starters, U.S. unemployment remains high. It dropped unexpectedly to 6.7% in December, but that number was skewed by a large number of long-term unemployed workers abandoning their search for new jobs. Of those who did find jobs, most were in the retail industry.

Those working in low-salary jobs don’t have much to look forward to. Wages are stagnant. In fact, workers’ wages and salaries are growing at the lowest rate relative to corporate profits in U.S. history.

Furthermore, for the first time ever, working-age people make up the … 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


The “Vanishing” First-Time Home Buyer; What It Means for the Housing Market

By for Daily Gains Letter | Jan 29, 2014

Housing MarketAh, the U.S. housing market, the so-called silver lining in the U.S. recovery—but not for long, as it may be rusting. The U.S. housing numbers are in, and they aren’t spectacular.

In the U.S. housing market, December existing-home sales rose one percent month-over-month at an annualized pace of 4.87 million units. Analysts were expecting December existing-home numbers to come in at 4.93 million. The one-percent increase also has to be taken with a grain of salt, as it was helped, in part, by a downward revision in November existing-home U.S. housing market sales to 4.82 million units. (Source: “December Existing-Home Sales Rise, 2013 Strongest in Seven Years,” National Association of Realtors web site, January 23, 2014.)

The December existing-home U.S. housing market sales of 4.87 million are also 0.6% below the 4.9-million-unit level recorded in December 2012. And sales of existing homes were down 27.9% at an annualized rate for the entire fourth quarter.

First-time home buyers—the fuel of the U.S. housing market—accounted for just 27% of all purchases in December, down from 28% in November and October and 30% in December 2012. That’s a huge drop over the 30-year average of 40% and a number real estate professionals and economists consider ideal. It is also the lowest level since the National Association of Realtors began tracking this metric in 2008.

First-time home buyers, who tend to purchase lower-priced homes, are being pushed out of the U.S. housing market recovery by all-cash sales. All-cash sales accounted for a whopping 42.1% of all U.S. residential sales in December, up from 38.1% in November and 18.0% in December 2012. (Source: “Short Sales … Read More


Why Gold Looks Good to Me in 2014

By Sasha Cekerevac for Daily Gains Letter | Jan 29, 2014

Gold Looks Good to Me in 2014Just the other day, I was talking to a friend of mine who seemed extremely cheerful. I asked why, and he said that his investments have performed well over the past few months and he saw no reasons to worry.

This is a common problem with investor sentiment; people tend to become complacent and only look to the recent past as an indication of what tomorrow will bring.

This is quite dangerous. Investor sentiment is often wrong and can be used as a contrary indicator, buying when others are dumping their stocks and taking profits when others are blissfully unaware of the changing landscape around them.

Americans need to be careful of becoming too complacent in their bullish investor sentiment, because the U.S. is not isolated from the rest of the world.

When the real estate bust and financial crash occurred here in America several years ago, the effects spread to many nations around the world, including the emerging markets.

With the Federal Reserve pushing the gas pedal on money printing here in the U.S., it has created a shock absorber to some extent, temporarily keeping global pressures at bay, especially in relation to the emerging markets.

However, investors do need to be aware that there is much uncertainty around the world. Investor sentiment for global institutions has been aware of these potential issues and is now running for the exits.

Last week this began in Asia, as economic growth appears to be slowing and reports of a financial crisis in China are beginning to grow. With the Chinese shadow-banking sector showing signs of cracking, this is creating negative investor … Read More