Daily Gains Letter

global economy


Best Way to Hedge Against Political and Economic Uncertainty

By for Daily Gains Letter | Oct 11, 2013

Hedge Against PoliticalWe’re less than a week away from the perfect economic storm in the U.S., and, based on what others are predicting, just a few short months away from a major 15% stock market correction.

At the beginning of October, almost a million federal employees were furloughed after the U.S. government shut down because it failed to ratify its annual budget. Should the government fail to raise the debt ceiling and therefore default on its loans, that issue will be exacerbated when the debt ceiling deadline arrives.

Failing to raise the debt ceiling will just add to America’s economic woes and put a major dent in the global economy while also undermining America’s credibility on the world stage. While some think a short-term default on the debt ceiling will not cause a major ripple, history is not on their side.

In 1979, the U.S. breached the debt ceiling on about $122 million in bills, but that was blamed on a technical issue related to a new-fangled word processing failure. The glitch caused yields to increase by half a percentage point, where they stayed elevated for months. A default on the debt ceiling this time around couldn’t be blamed on a technical difficulty due to new technology (having a disproportionate ego, however, could be a valid excuse).

Even after the U.S. government shutdown is resolved and the debt ceiling is raised, the U.S. will have suffered a major blow to its credibility. After that, it could go from bad to worse.

According to French banking giant Societe Generale, the S&P 500 will go through a tumultuous correction, even after the debt ceiling … Read More


Why I Remain Bullish on Gold

By for Daily Gains Letter | Oct 3, 2013

Bullish on GoldI am bullish on gold bullion. My convictions are very simple: central banks in the global economy are going to buy more of it. Their perspective towards the yellow shiny metal seems to be changing. As a result, the demand will increase, and with prices remaining suppressed, the supply will decline.

What we have seen is that central banks around the global economy have become buyers of gold bullion. In the recent past, we have seen central banks from countries like Russia, Turkey, and Kazakhstan add the yellow precious metal to their reserves. In the second quarter of this year, central banks throughout the global economy added 71 tonnes of gold bullion to their reserves. (Source: “Consumer demand for gold up 53% in Q2 2013 led by strong growth in China and India,” World Gold Council web site, August 15, 2013.)

Those who already hold gold bullion in their reserves are holding onto it. For example, there were rumors about the Italian central bank selling its gold bullion for the sake of economic growth in the country. It turns out that the bank is staying firm on its take on the precious metal.

At the London Bullion Market Association’s annual conference, the director general of the Italian central bank, Salvatore Rossi, said that “Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution.” (Source: Harvey, J. … Read More


Is Now the Right Time for Emerging Market Equities?

By for Daily Gains Letter | Sep 3, 2013

TEmerging markets seem to be gaining popularity these days when it comes to the “next big thing” for investors. The reason for this is very simple: emerging market equities have come down in value significantly from their recent highs, leaving investors asking if its time to jump in and buy to profit.

Take a look at the equity market in India, for example—the country is considered one of the biggest emerging markets. The India Bombay Stock Exchange 30 Sensex Index is down more than 10% from its peak in late July.

India isn’t alone; stocks and key stock indices in other emerging market economies are in very similar conditions, if not performing worse. China’s stock market is lagging, Indonesia’s has recently plummeted, and the Brazilian equity market continues to show dismal returns.Please look at the chart below to get a more precise idea:

Stock Exchange 30 Sensex Index Chart

Chart courtesy of www.StockCharts.com

 Before adding companies involved in emerging markets or buying an exchange-traded fund (ETF) that gives them exposure to those economies, every investor should ask themselves: does the stock market declining in value really mean there’s value—or, in other words, an opportunity for profit?

The answer: not necessarily.

Investors should consider that emerging market economies are sometimes relied on by developed nations to buy their products, because they can make them at cheaper rates. So if the developed markets start to see some sort of economic slowdown, the emerging market economies could see ripple effects. This may just be one of the phenomena driving the stock markets in those countries lower.

The developed nations in the global economy aren’t showing robust growth. For example, … Read More


Why the Stock Market Could Be Set Up for a Sudden Plummet

By for Daily Gains Letter | Aug 5, 2013

Stock Market Could Be Set Up for a Sudden PlummetInvestors need to be careful, as the risks on key stock indices are continuously piling up. They need to keep a close eye on their portfolio, and maybe should consider taking some profits off the table.

Since the beginning of the year, key stock indices, like the S&P 500, have been constantly increasing in value and making new highs. Recently, we witnessed the S&P 500 reach above 1,700, and other key stock indices, like the Dow Jones Industrial Average, entering uncharted territory as well.

With these increases, investors are now asking: how high can the key stock indices really go?

Looking at the broader picture, the U.S. economy isn’t performing as well as the key stock indices are suggesting. In times of high economic activity, the stock market tends to perform well. This is not the case for the U.S. economy as it stands, as the U.S. gross domestic product (GDP) only increased at an annual pace of 1.7% in the second quarter of this year. (Source: “Gross Domestic Product, second quarter 2013 (advance estimate),” Bureau of Economic Analysis, July 31, 2013.)

On top of this, the unemployment situation is still bleak in the U.S. economy, risking deterioration in consumer spending. The average American Joe is still facing many problems: look at food stamp usage and the amount of homes under negative equity, for instance.

Adding to the worries, the global economy is also showing signs of deep stress, with countries across the map showing concerns. For example, China is expected to show a significantly lower growth rate compared to its historical average this year, and the eurozone remains troubled … Read More


What You Need to Know to Protect Yourself from the Global Economic Slowdown

By for Daily Gains Letter | Aug 1, 2013

Global Slowdown to Disrupt Your PortfolioThe global economy is showing traits that shouldn’t go unnoticed by investors. Instead, investors should keep a close eye on their portfolio and make sure they are managing their risk properly by not being overexposed to a certain region, having their assets allocated in different asset classes, and having stop orders in place for their doubtful positions.

Investors need to know that companies trading on the key stock indices have exposure to the global economy; this means their stock prices can suffer.

The global economy looks to be heading towards a period of stagnant growth or an outright economic slowdown. The reason behind this notion is very simple: countries across the board in the global economy are witnessing anemic growth, and the demand is declining.

For example, consider India, one of the well-known emerging markets in the global economy. The central bank of India expects the country to grow by 5.5% in the fiscal year ending March 2014. This was lower than the central bank’s earlier forecast of 5.7%. (Source: Goyal, K., “India Central Bank Holds Rates in Push to Stem Rupee Plunge,” Bloomberg, July 30, 2013.)

In June, industrial output in the third-biggest hub in the global economy, Japan, fell 3.3% from a month earlier. This was the first time in five months that industrial output in the country fell; it had increased 1.9% in May. (Source: “RPT-Japan June industrial output falls 3.3 pct mth/mth,” Reuters, July 29, 2013.)

In addition to this, in the same month, the country’s retail sales also didn’t register as expected. Retail sales in the Japanese economy increased only 1.6%, compared to the 1.9% … Read More


Why Negativity Toward Gold Bullion Isn’t Affecting Physical Demand

By for Daily Gains Letter | Jul 30, 2013

gold bullion pricesGold bullion prices fell below $1,200 an ounce by the end of June; now, they are trading above $1,300, down from well above $1,600 in January. Looking at this price action in the gold bullion market, investors are asking if the recent surge after making lows is just a rally based on short covering—investors who were short-closing their positions—or if it’s due to fundamental reasons.

I stand in the camp that believes the rise in gold bullion prices we are seeing is due to fundamental reasons. That said, the sell-off we witnessed in the precious metal prices could take some time to recover.

In spite of the negativity and the notion that gold bullion isn’t useful in one’s portfolio, the physical demand continues to increase. Keep in mind that those who buy gold in physical form tend to have a long-term focus, compared to those in the paper market, who are there to speculate.

We are seeing demand increase here in the U.S. economy. For example, look at the demand for gold bullion coins sold at the U.S. Mint; Richard Peterson, acting director of the U.S. Mint, described it as “unprecedented.” (Source: Mason, J., “U.S. bullion coin demand still at ‘unprecedented’ levels: Mint,” Reuters, last accessed July 29, 2013.) But in the Far East, the demand is much higher.

Consider this: UBS AG (NYSE/UBS), one of the biggest gold-dealing banks in the global economy and based in Switzerland, announced that it will start to store gold bullion in Asia—specifically Singapore—for the first time.

What are the reasons for this move? “Notwithstanding the drop in gold prices, we are still receiving … Read More


Three Current Risks You Need to Be Aware of to Protect Your Portfolio Now

By for Daily Gains Letter | Jul 23, 2013

Aware of to Protect Your PortfolioKey stock indices are roaring higher—and this is making bulls happier, while bears are arguing the rise isn’t sustainable. Noise is at its peak. Regardless of this, investors shouldn’t lose sight of what is happening, and always manage their risk.

Since the beginning of the year, the S&P 500 has increased more than 18%. Other key stock indices, like the Dow Jones Industrial Average, have shown a similar pattern and have provided stock investors with profits.

Take a look at the chart of the S&P 500 below. At the very least it’s in a breakout mode. The S&P 500 broke above its long-term resistance, the price level where sellers dominate, around 1,550–1,575. It was tested twice—once in early 2000, and then in 2007—but failed to break above. Technical analysts would say what happened on the chart of the S&P 500 is simply bullish.

They would argue that when a resistance breaks, it becomes the support level—the price area where buyers dominate—and when the support breaks, it ends up becoming the resistance level.

S&P 500 Large Cap Index Chart

Chart Courtesy of www.StockCharts.com

I’m not saying key stock indices will decline from here and the S&P 500 will come crashing down. The path of least resistance seems to be towards the upside, while I focus on risk management—knowing what kind of risks are present and what kinds of events investors can expect.

The first and most important thing investors need to note is that the key stock indices rising upwards of 18% in the first half of the year—for a 36% yearly move—may be too much to handle.

It wouldn’t be a problem if the U.S. economy … Read More


How Smart Investors Can Benefit from the Current Global Economic Slowdown

By for Daily Gains Letter | Jul 18, 2013

Current Global Economic SlowdownIt is becoming very evident that the global economy is marching towards a period of major turbulence. I see both established and emerging economic hubs in the global economy struggling, and if it continues, then economic slowdown becomes inevitable.

Consider the estimates of growth in the global economy by the International Monetary Fund (IMF). It expects growth in the global economy to be as stagnant as 2012, forecasting a growth rate of a little over three percent. The IMF expects emerging economies to grow by five percent in 2013 and about 5.5% in 2014. (Source: “Emerging Market Slowdown Adds to Global Economy Pains,” International Monetary Fund web site, July 9, 2013.)

But with what we are already seeing, these estimates might just become obsolete, and the IMF might once again lower its forecast for the global economy.

For example, consider the Chinese economy, the second-largest economic hub in the global economy. It grew at an annual pace of 7.5% in the second quarter of this year from a year earlier—a decrease from 7.7% in the first quarter. The Chinese economy’s performance in the second quarter was the slowest in the last three quarters and marked the longest streak of growth rates below eight percent in at last 20 years. (Source: “China Growth Slows to 7.5% as 2013 Target Under Threat,” Bloomberg, July 15, 2013.)

China is performing well below its historical average. It wasn’t uncommon for the Chinese economy to grow at an annual pace of more than 10% in recent years.

The problems for the global economy don’t end there, as the troubles in the eurozone still continue. And … Read More


Look to This Eurozone Nation for Shorting Opportunities

By for Daily Gains Letter | Jul 15, 2013

Italy the Next Country to Send a Wave of Trouble Headed for AmericaInvestors who are looking to profit from the ongoing crisis in the eurozone should really be looking at Italy. It may just be the next country in the common currency region to run into troubles after Greece, Portugal, Ireland, Spain, and Cyprus have already made their own headlines.

Confesercenti, Italy’s retail association, recently reported that each day in Italy, 143 businesses are closing. Since the troubles emerged in the global economy in 2008, 224,000 businesses have closed their door in this one eurozone nation. (Source: “Crisis is closing ‘134 retail outlets’ a day in Italy,”  ANSA English, June 19, 2013.)

“It’s a massacre,” said Confesercenti president Marco Venturi. “Every day five grocers, four butchers, 42 clothes shops, 43 restaurants and 40 bars and catering businesses close down.” (Source: Ibid.)

And the economic miseries for Italy don’t end there. The economic slowdown in the country is deep in the roots of its economy and is taking a heavy toll.

The index tracking industrial production in Italy is in a continuous plunge. It stood at 80.80 in April, down 0.3% from March and at its lowest since April of 2009. The last time the index was that low was back in the late 1980s. (Source: “Production of Total Industry in Italy,” Federal Reserve Bank of St. Louis, July 1, 2013.)

Making things worse, Standard & Poor’s Ratings Services downgraded Italy’s credit rating to BBB from BBB+ after citing a negative outlook. This puts the sovereign rating of the eurozone country very close to the junk rating—speculative and with a higher risk of default. (Source: “ECB’s Noyer: S&P Italy Downgrade Underlines Priorities for … Read More


These Are the Sectors to Watch in an Overvalued Market

By for Daily Gains Letter | Jul 12, 2013

Why Looking at the Dow Jones as a Whole Could Be a Big MistakeWhat a difference 81 years can make. On July 8, 1932, the Dow Jones Industrial Average hit a Great Depression-era low, closing at 41.22, representing an 89.19% loss from its March 1929 peak of 381.17. Over the next 18 months, the Dow Jones Industrial Average gained 150%.

Over the last 81 years, the Dow Jones Industrial Average has climbed 3,700%, and closed at a record-high 15, 461 yesterday. Since hitting a Great Recession low of 6,705.63 in March 2009, the Dow Jones Industrial Average has rebounded almost 130%.

What have we learned over the last 80 years of investing? Maybe that patience is an investor’s most important virtue. When the markets have been faced with wars, terrorism, and economic or political upheaval, they always rebound. Even when the markets are down, there’s always a bullish play waiting to be discovered.

After all, making money in the stock market is about taking advantage of opportunities. People run to and away from stocks for the wrong reasons. In the words of Warren Buffet, “A public-opinion poll is no substitute for thought.” (Source: BrainyQuote, last accessed July 11, 2013.) When it comes to investing, it’s more important to think for yourself than to follow the herd.

That is especially true today. With the Dow Jones Industrial Average hitting a new record, that exuberance has more to do with the Federal Reserve’s $85.0 billion-per-month quantitative easing policy and artificially low interest rates.

In essence, today’s growth on Wall Street can be attributed to Federal Reserve chairman Ben Bernanke, the world’s biggest sugar daddy.

This will become evident after the second-quarter earnings season is in … Read More


How the Ongoing Trade Deficit Affects Your Investment Strategy

By for Daily Gains Letter | Jul 5, 2013

As U.S. Trade Deficit Deepens, Appeal of Foreign Currencies GrowsThe U.S. Department of Commerce reported that in the month of May, exports from the U.S. economy accounted for $187.1 billion, and imports from the global economy were $232.1 billion.

This situation of more imports than exports caused a trade deficit of $45.0 billion in May. Compared to the previous month, the trade deficit increased almost 11% from April. (Source: “U.S. International Trade in Goods and Services – May 2013,” U.S. Bureau of Economic Analysis web site, July 3, 2013.)

On the surface, the trade deficit may not sound like a big deal, but it has a profound affect on the currency and the gross domestic product (GDP) of a country. Here’s what you need to know: the U.S. economy has been registering a trade deficit since at least January 1992. (Source: “Trade Balance: Goods and Services, Balance of Payments Basis,” Federal Reserve Bank of St. Louis web site, last accessed July 3, 2013.)

A short-term trade deficit isn’t something to worry about—it can happen for many reasons, and can be easily absorbed by a strong economy—but a long-term, continuous trade deficit can be alarming. It can jeopardize the value of a currency and inhibit economic growth.

Essentially, what happens is that the country with a trade deficit is seeing its currency leave its borders. Right now, that means that other countries hold a significant amount of U.S. dollars. If they decide to sell their holdings on the market, it would create a huge increase in the supply of U.S. currency, leading to a lower dollar.

Similarly, GDP is calculated by adding the consumption, investments, government spending, and net exports … Read More


Maybe You Can Beat the Federal Reserve After All

By for Daily Gains Letter | Jul 2, 2013

Preparing for the Stumble of the Federal ReserveI used to think that financial results and economic data were the backbone of Wall Street, but I think it’s safe to say that the most important force driving the markets today is the Federal Reserve.

Everything the markets have done since the Federal Reserve initiated its first round of quantitative easing back in 2008 is testament to this. After bottoming in early 2009, the Dow Jones Industrial Average has climbed almost 120%, while the S&P 500 is up more than 135%.

As this five-year period of unprecedented Federal Reserve-inspired money printing continues, unemployment remains high, home values are still 25% below their pre-market crash levels, wages are stagnant, and the number of Americans relying on food stamps has soared 80% to 47.5 million.

For further proof, just look at the actions of the last few weeks. On May 22, the Federal Reserve hinted it might start tapering off its $85.0 billion-per-month quantitative easing policy as early as Labor Day.

The global markets responded with a massive sell-off. Just the idea that the global economy could survive without the Federal Reserve’s cheap money supply and artificially low interest rates was a little too much to bear.

Then, on June 19, the Federal Reserve riled markets again when it came right out and said that thanks to the strong economy, it would consider tapering off its monthly $85.0-billion quantitative easing policy by the end of the year. It also said it could end its quantitative easing policies altogether in 2014. Again, the markets tanked.

Just how strong is the U.S. economy? During the first quarter, 78% of S&P 500 companies issued … Read More


The Surprising New Drags on the Global Economy

By for Daily Gains Letter | Jun 24, 2013

The Surprising New Drags on the Global EconomyThe world’s two biggest economies seem to be competing against one another to see which can be a bigger drag on the global economy.

In the U.S., the problem is the regulators. As the old saying goes, you can’t fight the Fed.

On Wednesday, June 19, the Federal Reserve announced it would continue its quantitative easing program—at least until America’s jobs market improves substantially. At the same time, the Federal Reserve also said it would ease the $85.0 billion-per-month program by the end of the year, and could end it altogether in 2014.

For a bull market rooted more in the Federal Reserve’s monthly alimony payment than sound economic numbers, this is bad news. After five years, the world’s largest economy might have to stand on its own legs in 2014; that’s not something it’s prepared to do.

The U.S. markets reacted to the news the following day in a sea of red. In fact, less than two percent of S&P 500 companies were trading up.

And in China, the problem is disappointing manufacturing news, and it suggests the global economy is in worse shape than anyone thought.

The HSBC Flash China Purchasing Managers’ Index hit a nine-month low of 48.3 (49.2 in May). The Flash China Manufacturing Output Index came in at 48.8 (50.7 in May), a new eight-month low. A measure below 50 indicates contraction. (Source: “HSBC Flash China Manufacturing PMI,” Markit Economics, June 20, 2013.)

Here’s a quick summary of the China Flash Manufacturing Index: output is decreasing at a faster rate, new orders are decreasing at a faster rate, new export orders are decreasing at a … Read More


Has Hope Run Out for the Eurozone?

By for Daily Gains Letter | Jun 20, 2013

Has Hope Run Out for the EurozoneThe economic slowdown in the eurozone continues to take a toll on the global economy. It’s causing major economies like China to suffer severely due to anemic demand. Sadly, looking ahead, there’s really no light at the end of the tunnel. Despite the bailouts and the European Central Bank (ECB) taking a tougher stance, countries at the epicenter of the crisis continue to suffer and show dismal economic data, and others are starting to follow their lead towards economic scrutiny.

The Bank of Spain, the central bank of the fourth-biggest economy in the eurozone, reported that the total amount of bad loans in the country had increased to 167.1 billion euros in April from 162.3 billion euros in March. Month-over-month, the amount of bad loans in the Spanish economy has increased by 2.9%. (Source: “Spain’s mortgage crisis lingers on as bad loans soar,” Deutsche Welle, June 18, 2013.)

The ratio of bad loans to all the credit in the country increased to 10.87% from 10.47%. This means that out of every 100 loans in Spain, almost 11 were considered “bad” or default loans.

The situation in Italy, the third-biggest economic hub in the eurozone, is very similar. The Italian Banking Association reported that bad loans in the country increased by 2.3 billion euros to 133 billion euros from March to April. Year-over-year, the bad loans in this eurozone country have grown 22%, making up 3.5% of the total loans. (Source: “Bad loans at Italian banks still growing in April,” Reuters, June 18, 2013.)

What’s even more troubling is that industrial production in the eurozone is declining. It decreased by 0.6% … Read More


Soaring Key Stock Indices Headed Downward; How May 22 Changed Everything

By for Daily Gains Letter | Jun 17, 2013

Soaring Key Stock Indices Headed Downward; How May 22 Changed EverythingIt turns out that May 22 was very critical for the key stock indices. But surprisingly enough, this wasn’t just the case for stock exchanges here in the U.S.—it was the same for the global economy, as well. Just take a look at the chart below.

At first, the chart may look a bit confusing, but simply stated, it’s the performance of the S&P 500 (indicated by the black line) and other key stock indices around the world. For example, the blue line represents Japan’s Nikkei 225 Index, the green line shows the performance of France’s CAC 40 Index, the brown line depicts the changes in the Bombay Stock Exchange in India, the red line is the German DAX Composite Index, and the yellow line represents the performance of the Shanghai Stock Exchange Composite Index.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

It’s interesting to note that since May 22, when the Federal Open Market Committee (FOMC) meeting minutes hinted that the Federal Reserve may start to pull back on its quantitative easing as early as June, the stock markets around the world haven’t reached any new highs. As a matter of fact, they have been trending downward, continuing to make lower lows and lower highs.

Essentially, what this shows me—and what shouldn’t be a surprise to you—is that the key stock indices around the world were climbing on hopes of easy monetary policy and increased money printing. Now that the Federal Reserve may be ready to pull the punch bowl from the party, investors are panicking and selling.

Looking at all this, should investors take this as a turning point on the … Read More


Global Rout in Markets Gathering Momentum?

By for Daily Gains Letter | Jun 17, 2013

Global Rout in Markets Gathering MomentumSo this is what it looks like when global investors take their eyes off the Federal Reserve’s quantitative easing policy and focus on the real economy instead! As I’ve been predicting, the global sell-off of stocks looks like it’s beginning in earnest.

And you can pinpoint the exact moment investors and economists around the world began to get jittery. It was on May 22, right after the Federal Reserve hinted it might start tapering off its $85.0-billion-per-month quantitative easing policy as early as Labor Day.

The global markets haven’t been the same since.

Japanese stocks have entered bear market territory, tanking more than six percent last Thursday to a nine-month low on the threat of reduced economic stimulus from central banks. South Korean shares slipped 1.4%, hitting their lowest close in seven months.

Concern that China’s economic growth is grinding down has seen the Shanghai Composite Index trading at its lowest levels since mid-December 2012 and has dropped 12% from the year’s high on February 6.

One of China’s biggest trading partners may also be feeling the pinch. Australia’s economy expanded just 2.5% in the first quarter, below projected forecasts of 2.7%. While the country’s economy had been chugging along due to increased demand for natural resources, it is beginning to sputter thanks to the slowdown in China. Couple this with the country’s underperforming non-mining sectors, and you can see why Goldman Sachs and others think Australia could, after 22 years, slip into recession. (Source: “Australia’s economic growth rate misses forecasts,” BBC web site, June 5, 2013.)

On top of that, the World Bank cut its global 2013 growth forecast … Read More


Why a Eurozone Break-Up Could Happen; What It Means for Your Investments

By for Daily Gains Letter | Jun 7, 2013

Eurozone Break-Up Could Happen; What It Means for Your InvestmentsThe eurozone crisis has been haunting the global economy for a while.

Countries in the common currency region are deteriorating very quickly. Look at the Spanish economy, for example: in the first quarter of 2013, it contracted 0.5% after continuing its slide from the last quarter of 2012, when it declined 0.8%. The Spanish economy, the fourth-biggest in the eurozone, has been contracting for seven successive quarters. (Source: “Austerity chokes off Spanish economy,” Deutsche Welle, May 30, 2013.)

Other troubled countries in the eurozone, such as Greece, Portugal, and Italy, continue to take a toll on the region, as well. In April, unemployment in the eurozone reached another record-high, registering at 12.2%, compared to 12.1% in March; 19.3 million individuals were jobless in the euro area. (Source: “Unemployment statistics,” Eurostat web site, last accessed June 5, 2013.)

With the economic slowdown gaining a stronger grip on the region and with major economic hubs like Germany and France begging for growth, there are movements erupting across the eurozone demanding the abolishment of the economic bloc.

Germany has witnessed a rise of a new party called the Alternative for Germany party. According to a recently conducted poll, seven percent of Germans said they would “certainly” vote for this anti-euro party, while 17% said they would “probably” vote for them. (Source: Geiger, F., “New Anti-Euro Party May Enter German Parliament – Poll,” Wall Street Journal, April 6, 2013.)

But it’s not just Germany; other countries in the eurozone have the same kind of movement spreading. For example, there are political parties in Portugal that want out of the eurozone and two parties with … Read More


How to Profit as Major Economic Hubs Struggle for Growth

By for Daily Gains Letter | Jun 5, 2013

Profit as Major Economic Hubs Struggle for GrowthThe global economy seems to be in trouble. Some of the major economic hubs are showing deep concerns about their growth, while others are in outright economic misery and are registering poor economic performances.

China, the second-biggest hub in the global economy, is expected to grow at a much lower rate than its historical average. The International Monetary Fund (IMF) predicts the Chinese economy to grow 7.75% this year, lowering its prior forecast of eight percent. (Source: “IMF cuts China growth forecast to 7.75% in ’13,” China Daily, June 3, 2013.)

In 2012, the Chinese economy grew at the pace of 7.8%. Sadly, while this growth rate does look impressive for developed nations like the U.S., it was the slowest China had experienced in 13 years.

Japan, the third-biggest nation in the global economy, is experiencing a recession. The Bank of Japan has taken a severe approach to bringing the Japanese economy up to par, but it continues to fail. Exports from the Japanese economy remain stagnant, despite its currency falling more than 12% since the beginning of the year.

Bringing attention to the eurozone, it remains under severe stress. This time around, as the common currency region is in a recession once again, it’s not only the debt-infested nations that are suffering; the strongest and most major economies are also struggling for future growth.

Germany, the fourth-biggest economy in the world and the biggest in the eurozone, only grew 0.1% in the first quarter of 2013. In the last quarter of 2012, the German economy witnessed an economic contraction of 0.7%. (Source: “Germany reports sluggish first-quarter growth of 0.1%,” … Read More


15% Rise in 30-Year U.S. Bond Yields in One Month Reason to Sell?

By for Daily Gains Letter | Jun 3, 2013

15% Rise in 30-Year U.S. Bond Yields in One Month Reason to SellThe recent decline in U.S. bond prices and the increase in yields have gotten a significant amount of attention. Some are saying the bond market is going to see a severe downturn ahead, while others are calling it a buying opportunity. Should investors jump in and short the bonds? Or should they buy even more?

Staying away from the noise, long-term investors shouldn’t just jump to a conclusion by looking at the short-term price movement. This behavior can cause a significant amount of damage to an investor’s portfolio.

Take a look at the chart below, which shows the yield on 30-year U.S. bonds:

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

Without a doubt, the yield has increased, shooting up in just a month to 3.27% from below 2.85%. Last time the yield on 30-year U.S. bonds increased by a similar amount, it took about three months, from mid-December 2012 to March of this year.

What’s certain is that the short-term momentum is clearly headed towards selling, with investors running away from long-term U.S. bonds. Since mid-July of 2012, the 30-year U.S. bond prices have been declining and are in an apparent downtrend, making lower lows and lower highs; the price of a 30-year U.S. bond has declined from $153.00 to currently hovering close to $141.00.

According to the Investment Company Institute, long-term bond mutual funds witnessed inflows of almost $16.1 billion in March. Sadly, comparing this to the inflows of March of 2012, they were 47% lower. At that time, inflows in the long-term bond mutual funds were $30.8 billion. (Source: “Historical Flow Data,” Investment Company Institute web site, last accessed, May 30, … Read More


U.S. Retirement Confidence Way Down as Investors Flock to Products, Services That Reduce Risk

By for Daily Gains Letter | May 29, 2013

U.S. Retirement Confidence Way Down as Investors FlockRetirement confidence seems to follow the trends of the global economy. At least, that’s according to one recent survey that looked at 12,000 workers and retirees in 12 European, North American, and Asian countries, including France, Germany, Hungary, Japan, the Netherlands, Poland, Spain, Sweden, China, the United Kingdom, the United States, and Canada—making this one of the largest studies of its kind.

The study found that 65% of the participants believe future generations will be worse off in retirement than they are today; more than half of the American workers (55%) feel that way, while 80% of the workers from France and Hungary expect future generations to be worse off. The Chinese are the least pessimistic, with roughly one in five participants feeling the same way. Only nine percent of respondents believe future generations will be better off in retirement than those in retirement today.

Thanks to government cutbacks, 63% of employees think their government retirement benefits will be less reliable or helpful; American workers come in near the top at 65%. America’s retirement pessimism continues, with just 12% saying their personal retirement planning is “very well-developed.”

A further 37% of Americans don’t know if they can achieve their desired retirement income. Only 12% are very optimistic that they will have enough money to live on, and only another 12% are very optimistic that they will be able to choose when they retire.

Not surprisingly, you have to have a handle on what it takes to retire to actually be able to plan for a comfortable retirement. The current retirement-related risks have increased on the backs of “financial illiteracy”—with only … Read More


Key Stock Indices Soaring Higher; Will They Hit the Ceiling?

By for Daily Gains Letter | May 17, 2013

Key Stock Indices Soaring HigherThe stock market rally that began in March of 2009 is gaining attention once again. The key stock indices have surpassed the highs they registered before the U.S. economy was hit with a financial crisis and the ones made at the peak of the tech boom.

With all this, the direction in which the key stock indices are headed next has become a topic of discussion among investors: can they go any higher? Or we are bound to see another market sell-off, like the one we saw in 2008 and early 2009?

When looking at the state of the global economy, things are turning bleak. We have major economies outright worried about their future economic growth. For example, the Chinese economy is expected to grow at a slower rate compared to its historical average; the Japanese economy is still struggling with a recession, and efforts by the Bank of Japan to boost the economy haven’t really showed much success; and the eurozone is witnessing its longest economic contraction, with major nations falling prey to economic slowdown.

But looking at the U.S. economy, it portrays a different image; it appears things have improved. Unemployment is lower and consumer spending has increased since it edged lower in the financial crisis—both possible good signs of a stock market rally.

To no surprise, the noise is getting louder and louder as the key stock indices are moving higher. The bears are calling for the end of the bull market, while the bulls are cheering for the key stock indices and believe that they are bound to go much higher. Estimates are being thrown out; … Read More


Can the Eurozone Crisis Really Make a Dent in Your Portfolio?

By for Daily Gains Letter | May 8, 2013

Eurozone CrisisThe eurozone has sent waves of confusion through the global economy, and investors are concerned about what it could do to their portfolio. To say the very least, investors have all the right to be worried—bulls and bears are creating noise, making investment decisions even more difficult to make.

 

Bears’ Argument

The eurozone is in recession for the second time since 2009.

Back then, the problem was the debt-infested nations like Greece, Spain, and Portugal that swept the region with a slowdown, but now things appear to be different. The strongest nations like Germany and France are showing bleak performance. Similarly, other smaller nations that didn’t even make the news before are now in the headlines—just look at Slovenia and the Netherlands, for example.

Why is this a concern? The problem at the very core is that there are America-based companies that operate in the eurozone. If the region suffers through severe economic slowdown once again, the demand from consumers will decline due to high unemployment. As a result, the U.S. companies will see their sales decline, and eventually, their portfolio will deteriorate.

Bulls’ Argument

To fight this economic slowdown in the region, the European Central Bank (ECB) has taken some major steps. For example, to reduce the risks of the region dissolving, the ECB said it will “do whatever it takes” to save the region. (Source: “Verbatim of the Remarks Made by Mario Draghi,” European Central Bank web site, July 26, 2012, last accessed May 7, 2013.)

On May 2, the ECB announced a cut in its interest rates, lowering them to 0.50% from 0.75%. In addition, while … Read More


Why Are Short Sellers Avoiding These Two Gold Stocks?

By for Daily Gains Letter | May 2, 2013

Avoiding These Two Gold StocksIs the global economy recovering? While the economic indicators aren’t exactly robust, that hasn’t stopped some investors from seeing the silver lining. Gold, held in exchange-traded funds (ETFs) and other gold-related equities, is primed for the biggest monthly drop ever as investors, sensing the global economy is in recovery, are selling off bullion.

And it’s selling fast. Gold slipped into bear-market territory in mid-April, on the heels of improving global growth and weakening fears of rampant inflation. On Friday, April 12 and Monday, April 15, gold prices sank 14%, the biggest decline in 20 years. And on Tuesday, April 15, gold hit an intraday low of $1,321.50 per ounce.

You can’t keep a hard asset like gold down, though. Over the last couple weeks, the price of gold has rebounded and is currently trading up more than 11%, near $1,472. That’s still 19% below the $1,559 per ounce gold was trading at on April 11, the day before it was trounced.

Gold still has a long way to go to make up for the mid-April rout. At depressed prices, though, many astute investors realize some gold companies are sitting in attractive ranges—the operative word being “some.”

The path to recovery is still fraught with challenges. With global production costs currently hovering around $1,200 an ounce, a further price depreciation could send some of the lesser financially stable gold producers into a tailspin.

One indicator investors like to consider when looking at stocks is the number of short sellers. Short sellers are those who are betting a company’s share price is going to fall.

While no single indicator can predict a … Read More


Protect Your Portfolio from the Consequences of Inflation—Without Gold

By for Daily Gains Letter | Apr 26, 2013

Protect Your Portfolio from the Consequences of Inflation—Without GoldInflation is when the general price level increases. As a result, purchasing power diminishes; simply stated, every dollar buys less than it did before. Central banks around the world, including the Federal Reserve, continuously try to tame inflation so that it doesn’t get out of control, usually targeting for an inflation rate of anywhere from one to three percent.

One of the main causes of inflation is an increase in money supply. The reason behind this is very simple: as more currency is printed, its value diminishes; hence, more money is needed to buy things. For example, in the U.S., what $1.00 could buy you in the year 2000 now costs $1.35—inflation has increased 35% in just a matter of a few years. (Source: “CPI Inflation Calculator,” Bureau of Labor Statistics web site, last accessed April 24, 2013.)

Please look at the chart below of the Consumer Price Index (CPI), a measure used by the Bureau of Labor Statistics (BLS) to record inflation. The CPI has increased significantly over time.

 

 CCPI-Consumer-Price-Index-chart

Chart courtesy of www.StockCharts.com

The impacts of inflation are immense. While inflation affects the daily expenses of families, it can certainly take a toll on the portfolios of long-term investors as well.

Using the earlier example, just to maintain the same buying power, an investor’s portfolio must have earned 35% at the very minimum, or their portfolio would be at a loss.

To say the very least, a portfolio must beat the inflation rate for an investor to have at least the same buying power when it’s time to use their funds for whatever they were saving for, be … Read More


Bull or Bear, Here’s How to Make Money with Silver

By for Daily Gains Letter | Apr 23, 2013

Bull or Bear, Here’s How to Make Money with Silver

Do silver prices have any room to run up, or has the metal lost its shine? This question is getting a lot of traction these days among investors, as the price of the gray metal has declined significantly since the beginning of this year—more specifically, since the recent drop in prices in April.

In April of 2011, silver prices hit a record high and reached almost $50.00 an ounce. In 2012, the metal traded in a sideways channel, from $27.00 to $35.00. Take a look at the long-term chart of silver prices below:

dl_04232013_graph1
Chart courtesy of www.StockCharts.com

Historically, since the bull run in silver prices began—in the midst of 2001, when it traded close to $4.00—there have been sharp corrections. In 2008, silver prices fell from trading above $21.00 to $9.00 per ounce; this was before the financial crisis started to really unfold. Similarly, in 2006, silver prices dipped more than 30%, dropping from $15.00 to below $10.00 per ounce. Going back even further, in 2004, silver prices plummeted from trading well above $8.00 to below $5.50. (All these periods are circled in the chart above.)

In all these instances, it took silver more than a year to recover and reach a high.

Keeping all this in mind, the bulls are saying that as long as the global economy remains treacherous, governments continue to spend, and central banks around the world keep printing money; then just like gold, silver prices will soar higher, as well. The bulls argue that the global economy is still fragile: China is slowing down, the U.S. is witnessing dismal growth, and the eurozone is still … Read More


Three Reasons Why This Stock Market Can Accelerate on Bad News

By for Daily Gains Letter | Apr 18, 2013

180413_DL_clarkIt’s now the avalanche of corporate earnings season, and so far, it’s not too bad.

There are going to be disappointments. And there will be even more disappointments. But on balance, I don’t care what anybody says; in the U.S. economy and the global economy, any growth is good.

The stock market is going to go where it’s going to go, but the most important factors are the earnings, revenues, balance sheets, and corporate outlooks.

Here’s why the stock market can go higher:

Investor Sentiment

Institutional investors have money that needs to go to work. Money is flowing back into the stock market, and investors don’t pay fund managers to sit on cash. Fund manager BlackRock, Inc. (NYSE/BLK) announced very good first-quarter earnings and net new inflows of funds grew to $39.4 billion, of which $33.7 billion was for the stock market.

Corporate Earnings

It’s early, but earnings last quarter weren’t bad for a lot of companies, and blue chips all around are reporting growth. Certainly, not every company is going to meet or beat earnings expectations, but when you have a mature corporation like Johnson & Johnson (NYSE/JNJ) report first-quarter revenue growth of 8.5% (10% if not for the stronger dollar), that’s impressive in the global economy. Lots of other blue-chip companies are reporting solid numbers—numbers that have beat expectations. The numbers aren’t perfect in large-cap technology, but old economy companies are holding up, as are most banks.

The Fed and Interest Rates

The Federal Reserve is absolutely committed to reinflating assets. It’s been doing this for some time now and, according to the stock market, it’s working. But … Read More


Why Plunging Commodity Prices Are Great for the Stock Market

By for Daily Gains Letter | Apr 17, 2013

170413_DL_clarkThe big drop in the value of many commodities is very good news for this stock market.

All of a sudden, raw materials are cheaper in price. This is going to translate right to the bottom line of many corporations.

And one of the best developments is the weaker price of oil. Big oil stocks have done consistently well in the stock market, but smaller corporations have struggled due to the fact that the spot price has not been able to move much past the $95.00-per-barrel level. Now that spot oil is below $90.00 a barrel, transportation stocks are really going to benefit.

Of course, it takes time for big oil corporations to reduce gasoline prices. It’s common knowledge that when the spot price of oil spikes, gasoline prices immediately go higher. But when oil drops, it always takes much longer for gasoline prices to reflect reality. This is the nature of big oil, and there’s nothing that can be done about that.

The stock market is currently digesting a slew of earnings from corporations, as well as economic news that continues to show economic struggle.

But with gold, silver, and oil all trending lower, this is an absolute gift to the majority of old economy corporations.

It never used to be this way until recently, but the U.S. stock market now trades off of China’s economic data. And while China is still growing significantly, it’s all about expectations for high growth, not the degree to which the economy may be contracting.

The plunging spot price of gold is partially a reflection of the sentiment that investors have regarding risk. … Read More


Can Individual Investors Really Profit from Central Bank Paper Currency Printing?

By for Daily Gains Letter | Apr 16, 2013

160413_DL_zulfiqar

Since the financial crisis of 2009, central banks around the world—not just the Federal Reserve—have picked up a new way of revving up economic growth. This phenomenon is called “quantitative easing”—not a new concept, but it has gained a lot of attention in the financial world recently.

The idea behind quantitative easing is very simple. The central bank prints money and injects it into the economy through banks, governments, and other ways. The hope is that the money will eventually trickle down into the hands of consumers and businesses, so they can spend. From there, economic growth picks up; as consumers spend, businesses need to create more, eventually needing to hire more workers, and so on and so forth.

Does quantitative easing actually work? This depends on how you look at the economic conditions. For example, in the U.S., the Federal Reserve has been continuously implementing quantitative easing. The central bank has grown its balance sheet over $3.0 trillion, and as I write this, it is printing $85.0 billion a month and purchasing government bonds and mortgage-backed securities from the banks.

Those who favor quantitative easing say that it is working. They argue that unemployment is decreasing, businesses are hiring, and consumers are spending. On the other side, the opponents of quantitative easing argue that the quality of jobs isn’t there and consumers aren’t really spending on anything but basic needs.

Regardless of which side you’re on, quantitative easing has one effect, which can make investors money—the more money that’s printed, the lower the currency value goes. Consider the situation in Japan.

The Japanese economy, which exports a significant amount … Read More


In the Age of Austerity, Where’s the Next Great Trade?

By for Daily Gains Letter | Mar 14, 2013

140313_DL_clarkThe joke is on us. Record highs are always impressive, but really, the stock market has only returned to where it was in 2000. That’s a long time to go without any gains from equities, and it illustrates that the business cycle definitely exists in capital markets. This is not a bull market; this is a recovery stock market.

Really, the stock market’s over performance in the late 1990s was pretty obvious. Most investors knew that the bull market in technology stocks was going to end, and a lot of investors cashed out before the party ended. The 80s and 90s were the golden decades for the stock market—one of the biggest bull markets of all time. When the stock market peaked, the best trade going was in bonds, which have been riding their own bull market—until now.

So, in the age of austerity, what’s the next big thing? I just can’t see it being the stock market, even though stocks aren’t expensively priced yet and there are always good businesses to consider. Real economic growth just isn’t present right now in the global economy, meaning big gains won’t be coming to the stock market. And I don’t see how interest rates can go any lower, so the bull market in bonds is over. Currencies are going to be very volatile in the age of austerity, with high sovereign debt and manipulation by central banks. So what’s the next great trade?

I figure it’s in resources, but gains aren’t going to be evenly distributed among the many commodities, and they won’t be realized at the same time. Like Jim Rogers, … Read More


Save Yourself from Declining Gold Prices

By for Daily Gains Letter | Mar 13, 2013

130313_DL_zulfiqarGold bullion prices have seen a slight decline since the beginning of the year—the yellow metal was trading well above $1,600 an ounce in early January, and now, gold is trading close to $1,550 an ounce.

The reason behind the sell-off in gold bullion prices is mainly due to the optimism surrounding the expected improvement in the global economy and central banks’ expected move to tighten their monetary policies—raising interest rates and halting quantitative easing activities.

On top of all this, the stock chart for gold bullion, featured below, is showing a significant presence of bearish sentiment. As gold bullion prices declined, the 200-day moving average (MA) crossed above the 50-day MA—a bearish signal called a “death cross.” This is also considered a sell signal by technical analysts.

dl_031313-image003Chart courtesy of www.StockCharts.com

As gold prices slid downward, investors fled from gold miners—selling them at a much faster rate than they had bought them. Since the beginning of the year, when gold bullion prices have decreased by roughly six percent, the gold miners have done much worse. Just consider the Market Vectors Gold Miners (NYSE/GDX) exchange-traded fund (ETF), for example. It has plummeted by about 20% in the same period.

130313_DL_zulfiqarThe reason? When gold bullion prices decline, the profitability of gold miners declines with them. Think of it this way: if a gold miner is able to produce one ounce of gold bullion for a cost of $600.00 and the market price is $1,600 an ounce, then its profit would be $1,000. On the other hand, if its costs remain the same, and the price declines to $1,400 an ounce, the … Read More


Grow Your Portfolio with Consistent Dividends

By for Daily Gains Letter | Feb 28, 2013

280213_DL_zulfiqarThe global economy seems to be in trouble—an economic
slowdown is spreading and some are calling for a global recession.
The demand in the overall global economy is decreasing, and exports
are being hurt. The countries which were the manufacturing hubs are
producing less, and the consuming countries are watching their pockets.

Before I go into any further detail, take look at the chart for the Baltic
Dry Index (BDI) below. If the index goes downward on the chart, it means the global demand for exports is decreasing. In contrast, if it goes up, it suggests improving demand for goods in the global economy.

dl_02282013_image002Chart courtesy of www.StockCharts.com

Unfortunately, since the beginning of 2012, the index has plummeted, and it has stayed in stress ever since—suggesting global exports are in poor condition.

In times when exports become bleak, companies involved in transporting goods internationally usually become the victims and suffer. Not all companies can bear the storm—a decline in exports causes the volume shipped by these companies to decline, hurting their profits.

With that said, in any industry, there are always stars that have the ability to weather the turbulence and stay the course.

Nordic American Tankers Limited (NYSE/NAT) is a tanker company that owns and operates Suezmax crude oil tankers. The company is based in Hamilton, Bermuda. In the beginning of 2004, the company operated with only three vessels; by the fourth quarter of 2012, the company had a fleet of 20 vessels. (Source: “Nordic American Tankers Limited (NYSE:NAT)—NAT is well positioned to benefit as market fundamentals improve,” Nordic American Tankers Limited web site, February 11, 2013.)

The stock … Read More


Look to Infrastructure for Portfolio Protection

By for Daily Gains Letter | Feb 27, 2013

270213_DL_whitefootWith the global economy in disarray, it probably doesn’t sound like the best time to add an infrastructure company to your investment portfolio. But it is.

In spite of a weak U.S economy, record debt, the eurozone slipping back into recession, and a weak outlook, pressure continues to mount for countries around the world to build and upgrade their infrastructure (i.e., hospitals, toll roads, airports and ports; utilities and communications infrastructure) in an effort to help stimulate the economy.

And the timing couldn’t be better. In spite of the dramatically changing environment, the global infrastructure has not kept pace. In fact, the world faces an infrastructure deficit estimated at $20.0 trillion over the next two decades, with Brazil, China, India, and the U.S. leading the way. The U.S. infrastructure deficit totals $40.0 billion a year in the roads sector alone. (Source: Thompson, C., et al., “The problem is more than money: Global Infrastructure Crisis,” Deloitte web site, last accessed February 26, 2013.)

Ultimately, the development of a strong infrastructure is essential to manage growth and drive productivity. To achieve this, cash-strapped governments around the world have turned to the private sector for help.

Aecon Group Inc. (TSX/ARE) provides international construction and infrastructure services to customers in the private and public sectors worldwide. The company operates in three of the most lucrative sectors: transportation, energy, and natural resources. The company’s infrastructure branch constructs public and private infrastructure, including roads and highways, hydroelectric power projects, office buildings, airports, marine facilities, and transit systems. The company’s industrial segment engages in the construction of alternative and fossil fuel power plants; in-plant construction at nuclear … Read More


How to Profit from America’s Rise to Top Oil Producing Powerhouse

By for Daily Gains Letter | Feb 26, 2013

260213_DL_zulfiqarThe U.S. is expected to overtake Saudi Arabia as the world’s top oil-producing nation by 2017; and by 2030, it’s also expected to become a net exporter of oil to the global economy—meaning it will be self-sufficient when it comes to energy consumption, according to a report published by the International Energy Agency (IEA). (Source: Rosenthal, E., “U.S. to Be World’s Top Oil Producer in 5 Years, Report Says,” The New York Times, November 12, 2012.)

In addition to the U.S. becoming a major oil producer, the IEA also indicated that the U.S. will overtake Russia as the world’s top natural gas producer by 2015. (Source: Ibid.)

Having said that, how can investors take advantage of this growth in energy production in the U.S. economy but not invest in oil and gas plays?

Hercules Offshore, Inc. (NASDAQ/HERO) provides shallow-water drilling and marine services to companies involved in oil and natural gas exploration and production worldwide. The company is based in Houston, Texas; Hercules’ fleet of jackup rigs is the largest in the U.S. Gulf of Mexico, and it’s the fourth-largest in the world. In addition, the firm is also the operator of the largest inland barge drilling fleet across the U.S Gulf Coast, and the largest lifeboat fleet worldwide. (Source: Hercules Offshore, Inc. web site, last accessed February 25, 2013.)

 

dl_0226_003 Chart courtesy of www.StockCharts.com

Currently trading near $6.70 with an average three-month volume of about 3.2 million per day, almost 74% of Hercules is held by institutions and 18.5% is held by insiders. The company’s book value stands at $5.57. (Source: Yahoo! Finance, last accessed February 25, 2013.)

On … Read More