When I’m looking at the screens each day, I notice there’s some selling capitulation occurring that makes me think back to 2000, when the technology stocks imploded.
Now, while I doubt we are seeing a repeat of 14 years ago, you have to wonder about the mad dash to the exits for many of the high-momentum technology stocks along with small-cap stocks. The small-caps are under threat, with the Russell 2000 down nearly eight percent in 2014 so far and close to five percent in April alone. Watch as the index is just above its 200-day moving average (MA).
Chart courtesy of www.StockCharts.com
As I said last week, the fact that the NASDAQ and Russell 2000 have failed to recover their respective 50-day MAs is a red flag, based on my technical analysis. Moreover, the presence of a possible bearish head-and-shoulders formation on the NASDAQ chart is concerning for technology stocks.
The lack of any leadership from technology stocks now, which was so prevalent in 2013, has also hurt the broader stock market.
On the charts, only the S&P 500 is positive in 2014, with a slight advance. All of the key stock indices were negative in April—a month that has historically been positive.
To make matters worse, we are heading into traditionally the worst six-month period for the stock market, from May to October, so it’s not going to get easier anytime soon.
The fact that numerous technology stocks have produced some strong earnings results is encouraging, but the lack of strong follow-through buying is a concern and suggests some exhaustion towards technology stocks.
We also have the uncertainty … Read More
The 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
“I think the stock market is getting into the overbought territory. Gold is due for a pullback. To be honest, I don’t see many opportunities out there other than bitcoins.” These were the words of wisdom from my good old friend Mr. Speculator. While most have forgotten about the virtual currency, Mr. Speculator thinks there’s an opportunity.
His reasoning behind this shows he is very naïve. He said, “The bitcoin prices have come down significantly from their highs. Buy low.”
It seems as if Mr. Speculator has forgotten one of the most basic lessons of investing.
Sure, bitcoin prices have declined—in fact, the word “collapsed” should be used. Just a few months ago, one bitcoin could be purchased for more than $1,100. Now, the price hovers below $700.00.
If you are considering bitcoins to be a good investment opportunity, you have to know what is really happening; there are too many concerns surrounding the currency, and investors should be aware of them.
One of the biggest concerns, among many, is that one of the main exchanges where bitcoins could be bought and sold, called Mt. Gox, filed for bankruptcy. Before the exchange filed for bankruptcy, there were complaints about users not being able to withdraw money. With this, there is also evidence of fraudulent activity. (Source: Finley, K., “Bitcoin Exchange Mt. Gox Files for U.S. Bankruptcy as Death Spiral Continues,” Wired, March 10, 2014.) This is sending out a wave of fear.
Another concern is that usage of the virtual currency is being questioned. Will bitcoin ever get the currency status?
Consider this: a company called Balanced Energy LLC, based … Read More
The winter storm that recently tore across the northeastern United States will, no doubt, take the blame for the continuing weak economic news and data that have been coming out of Wall Street. Having been the economic scapegoat since December, there’s no reason to change tactics.
But the raft of ongoing disappointing economic news and data suggests there’s more to the nation’s weak economic news than cold weather. After all, it’s not as if the U.S. economy had been red-hot and then suddenly hit a brick wall in December. If there’s one thing the U.S. economy has been—it’s consistently weak.
For example, while the S&P 500 and other stock indices have been enjoying prolonged bull runs, the U.S. economy has been stalling. Since the magical bull market began in 2008, the U.S. unemployment numbers have remained stubbornly high and the underemployment numbers eye-wateringly high. At the same time, wages are stagnant and, not surprisingly, retail sales have disappointed. More and more Americans are saddled with out-of-control debt and a record 20% of American households (one in five) were on food stamps in 2013.
Speaking of 2013, while the S&P 500 notched up a 30% annual gain, each quarter, an increasingly larger percentage of companies revised their earnings guidance lower. Saving the best for last, during the fourth quarter of 2013, a record 88% of S&P 500 companies that provided preannouncements issued negative earnings guidance.
But 2014 didn’t start out that well, either. For the first quarter of 2014 so far, 80% of the S&P 500 companies that have issued guidance revised their earnings lower; this compares to the 78% of … Read More
By Sasha Cekerevac for Daily Gains Letter | Mar 14, 2014
There is something going on right now in the copper market that should alarm you. Over the past week, the price of copper has plunged, recently hitting a four-year low.
Why should this matter?
Most investors and analysts are placing bets that economic growth is about to re-accelerate globally. Never before has the world been so interlinked, so we must pay attention to what is occurring internationally.
Copper is an important part of the potential for economic growth, not just because it is used in building and construction, but because it is also a major factor in the Chinese lending market, which is now showing severe strain leading to a potential debt crisis.
Remember, the last financial emergency was led by a debt crisis brought on by a housing bubble that eventually popped. High levels of debt creating a bubble are always dangerous, as the hangover is quite severe.
How does this impact economic growth for us here in America?
To begin with, we all know that the U.S. is doing relatively better than other parts of the world, but we are not exactly running at full speed. Any slowdown in economic growth—especially with a country as large as China—that is brought on by a debt crisis in that nation could severely impact our economy.
In China, the lending market is quite different than in North America, and firms have to rely on what’s called shadow banking.
Many firms in China have trouble borrowing, so they buy copper and use it as collateral. We are not talking about a small amount of money, as a shadow banking system in China … Read More
One of the investment strategies discussed in the mainstream these days is to add exchange-traded funds (ETFs) to your portfolio. It is said that when you do just that, your portfolio has lower risks and you are well diversified.
For investors who are not as advanced, when it comes to investing; this investment strategy makes sense. For those who are advanced, they shouldn’t fall for this investment strategy; they may be better off going the other way—buying individual stocks instead.
Let me explain…
Between March of 2009—when the bull market run started—until February of this year, if you bought the most famous ETF for your portfolio—that is SPDR S&P 500 (NYSEArca/SPY), which tracks the S&P 500—your returns would be more than 185%. Plus, there would be dividends. Including dividends, your returns would be just over 200%.
But, saying the very least, you could have done better.
If instead of buying the SPY at the time when markets were presenting investors with an opportunity of a lifetime you bought a company from the S&P 500 like General Electric Company (NYSE/GE), your profits would be upwards of 300%. This is including the dividends you would have received.
With all this said, let me make one thing very clear; I am not opposed to adding ETFs to a portfolio. Rather, I believe investors can get better portfolio returns if they are confident enough in making their investment decisions and buying individual companies instead of sticking to indexed investing.
In 2009, stock markets were very uncertain. With companies like GE, there were fears that it may go bankrupt. Buying at that time wouldn’t have … Read More
These days, we have been hearing a significant amount of news out of Ukraine. “Pro-Russian troops” are now in control of the security and administrative systems in the Crimea region, which is the mainly Russian-speaking area of the country. World leaders are saying that this is nothing but an act of aggression by Russia, saying that at the very least, the situation is worsening each day and it’s very unpredictable what could happen next.
As a result of the uncertainty, key stock indices here in the U.S. are sliding lower—mind you, the Ukraine is neither a major trading partner with the U.S. nor is it a country in which a lot of American-based companies operate. Considering this, one must wonder why key stock indices are seeing selling then at all.
Here’s what investors really need to know…
It all comes down to this: the Ukraine/Russia issue is a problem for the global economy, with which the key stock indices are highly correlated. If the global economy as a whole faces an issue, then the key stock indices slide lower. This is something investors have to keep in mind.
Ukraine is just one of the issues for the global economy that we see in the news; there are others, which investors need to know about, that may have even more gruesome consequences on the key stock indices than now.
For example, the Chinese economy isn’t getting much attention these days, but we see manufacturing activity in the country is continuously declining. This shows that the demand is slowing down and it will impact the bottom-line of companies on the key stock … Read More
Nothing helps create volatility on the stock market like the threat of war. And just a few short days after the close of the bloated $52.0-billion behemoth in Sochi, Russia has embraced its ne’er-do-well Olympic spirit and invaded the Ukraine. Or, according to Putin, “pro-Russian soldiers” have simply moved into the Ukraine to defend Russian interests.
With a growing threat of war/retaliation on the horizon, investors have been pulling their money from riskier assets, like stocks—sending global financial markets reeling. Crude oil and gold prices, on the other hand, have been on the rebound.
While it seems utterly crass to deconstruct the potential for war down to economics, the fact remains—a stand-off or sanctions could both disrupt gas supplies to the European Union and send U.S. crude oil prices higher.
For starters, any issues in the Ukraine could disrupt the flow of natural gas supplies from Russia to the European Union. That’s because the European Union gets about a third of its crude oil and natural gas supply (and a quarter of its coal) from Russia, mostly piped through the Ukraine. Russia, the world’s biggest crude oil producer, generated 10.9 million barrels a day in 2013 and currently exports close to 5.5 million barrels of crude oil per day.
Since the end of the Cold War, no one really worried about relying on Russia for crude oil and coal. All of that has changed. While the notion of war is remote, it’s still on the table. Nations far removed from Russia and Ukraine might push for economic sanctions, just as the U.S. has done, threatening visa bans, asset freezes, and … Read More
Just like any other commodity, natural gas prices are affected by supply and demand metrics. If demand increases and supply remains the same (or declines), you have a perfect recipe for higher prices. Since the beginning of the year, this commodity’s prices are up more than 40%!
Before you start judging where the prices will go next, you have to see what kind of factors can affect the demand or supply. Consider gold prices, for example. If the demand for gold increases and, at the same time, there’s a discovery of a major mine—the prices may not move as much as anticipated if the mine wasn’t discovered. The reason behind this is simple: there’s supply to meet the demand.
A few factors that affect the natural gas demand and supply are playing out in favor of those who are bullish on it. For example, the commodity is highly affected by weather.
In extremely cold weather, natural gas is used to heat up homes—cold weather disrupts the short-term supply due to increased demand and causes prices to soar. In extremely hot weather, we see a similar situation occur in the commodity’s prices. Power plants use more natural gas to make electricity to meet the increased use of air conditioning units in homes and buildings. This phenomenon, again, causes a disruption in the short-term supply because power plants consume more. This results in higher prices as well.
What’s happening in natural gas prices these days is the very same problem; the short-term supply is being tormented by extreme weather—in this case, extremely cold weather. We have seen some extreme winter storms and … Read More
We see there’s a significant amount of economic news mounting against the argument that key stock indices will go higher this year. We see major companies on the key stock indices reporting corporate earnings that are dismal to say the very least. We see indicators of prosperity suggesting the opposite is likely going to be true for the U.S. economy. Lastly, we also see troubles developing very quickly in the global economy.
First on the line are the corporate earnings of companies on the key stock indices—which is hands down one of the main factors that drive these indices higher. We see companies showing signs of stress. Consider General Motors Company (NYSE/GM), for example; the company’s corporate earnings declined 22% in 2013 from the previous year. (Source: “GM reports lower-than-expected 4Q earnings,” Yahoo! Finance, February 6, 2014.)
Some might call this a story of the past; we need to look at what the future looks like instead. Sadly, going forward, companies on the key stock indices and analysts look worried as well. Consider this: so far, 57 S&P 500 companies have issued negative corporate earnings guidance, while only 14 have issued positive guidance. At the same time, analysts’ expectations are coming down as well. On December 31, the consensus estimate expected S&P 500 earnings to grow by 4.3%; now, these expectations have come down to 1.5%. (Source: “S&P 500 Earnings Insight,” FactSet, February 7, 2014.)
Looking at the broader U.S. economy, it’s not moving in favor of the key stock indices, either—the economic data isn’t looking very promising.
Industrial production in the U.S. economy declined in January from the previous … Read More
Back 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
Troubles in the global economy look to be strengthening, suggesting an economic slowdown may be following. Not only are the major economic hubs of the global economy showing signs of stress—something I have mentioned in these pages many times before—but we see demand slowing down as well.
The Baltic Dry Index (BDI) gives us a general idea about how the demand in the global economy looks. At the very core, this index tracks the shipping price of raw materials. If the shipping prices increase, it suggests there’s increased demand in the global economy. If they decline, it’s not really a good sign. Please look at the chart of the BDI below.
Chart courtesy of www.StockCharts.com
The BDI is outright collapsing. Since the beginning of the year, the BDI has declined more than 42%. This shouldn’t be taken lightly because it suggests demand in the global economy is slowing down very quickly. Looking at the average change in the BDI in January since 2003, this decline in 2014 is the second-biggest on record—in 2012, the BDI collapsed 58% in January.
Another indicator of demand in the global economy I look at is the Chinese economy. It has been known as the manufacturing hub of the world, and the country exports a significant amount of its goods to the world. If we see manufacturing activity in that country slow down, it gives us a hint that a global economic slowdown may be following.
Consider this: In January, the HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI)—an indicator of manufacturing activity in China—plunged to a six-month low. It was registered at 49.6 in … Read More
By Sasha Cekerevac for Daily Gains Letter | Jan 29, 2014
Just 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
It seems the global economy is taking a wrong turn. If it continues on the path it’s on now, it will not be a surprise to see a pullback in its growth. As a result of this, U.S.-based global companies may see their revenues and profits fall, which eventually leads to lower stock prices. You have to keep in mind that the U.S. economy is highly correlated with the global economy.
First, it seems that the demand in the global economy is slowing down as we enter into 2014. One of the indicators of demand in the global economy I look at is the Baltic Dry Index (BDI). The BDI is an index that tracks the shipping price of raw materials. If the index declines, it means demand in the global economy is slowing. If the BDI increases, it suggests the global economy may see an influx in demand. Below is the chart of the BDI. Note that since the beginning of this year, the index has collapsed more than 32% (as indicated by the circled area in the chart below).
Chart courtesy of www.StockCharts.com
But that isn’t all. We continue to see dismal economic data out of the major economic hubs of the global economy, too.
China, the second-biggest economic hub in the global economy, is showing signs of slowing down. The Chinese economy in the fourth quarter of 2013 grew at an annual pace of 7.7%. In the third quarter, this growth rate was 7.8%. (Source: “China’s Expansion Loses Momentum in Fourth Quarter,” Bloomberg, January 20, 2014.) Although this growth rate may sound very impressive when compared to … Read More
If you listen to the Wall Street analysts, January consumer confidence numbers weren’t really all that bad. The preliminary University of Michigan Consumer Confidence index came in at 80.4 versus a forecast of 83.4—and down from 82.5 in December. (Source: “Tale of two consumers continues as US consumer sentiment slips,” CNBC, January 17, 2014.)
Some attributed the blip to the polar vortex that swept through most of North America earlier in the month. The warmer winds of February are expected to pick up the disappointing slack in U.S. consumer confidence levels next month.
But I’m not so sure. Friday’s consumer confidence numbers missed expectations by the widest margin in eight years. It also marks the seventh miss in the last eight months. Throughout 2013, consumer confidence numbers only beat projected forecasts three times, which (surprise!) means Wall Street doesn’t really have its finger on the pulse of Main Street America.
What isn’t surprising is that upper-income households have increased consumer confidence, having benefited the most from strong gains in income levels, the stock market, and housing values. On the other hand, low- and middle-income households that are not heavily invested in the stock market are being weighed down by stagnant wages and embarrassingly high unemployment.
And, since there are more middle- and low-income earners than high-income earners in the U.S., and 70% of our gross domestic product (GDP) comes from consumer spending, it’s fair to say that both consumer confidence levels and the economic outlook for the majority of Americans is bleak.
It’s not as if the disappointing consumer confidence levels have come out of a vacuum. A raft of … Read More
Now that New Year’s has come and gone, as we look forward into 2014, the big question will be how the stock market performs this year, especially following an impressive advance in 2013 that was beyond my estimates.
The past year was seen as the year of the Fed-induced market rally that resulted in some strong gains across the board from blue chips to technology and growth stocks. It was one of the best years to make money on the stock market in recent history.
At this stage, the economy is looking better and will need to strengthen in order for the stock market to advance higher toward more record gains. A strong January would be positive and would suggest an up year for the stock market.
My early view is that the stock market will head higher in 2014, but not at the same rate as we saw in 2013, which was out of whack.
The key will be how fast the Federal Reserve, under Janet Yellen, decides to taper its bond buying. A slower taper is supportive for the stock market. However, the flow of money will depend on the rate of economic renewal and, more specifically, the jobs market and whether job creation continues to move along at a steady pace. If we see growth and more jobs created, the Fed will continue to cut its bond buying, though it has said that it will keep interest rates near record lows until the unemployment rate falls to 6.5% or lower, which could happen sometime in mid- to late 2014.
I see another up year for the stock … Read More
Back in March, a Canadian man listed his house for sale in exchange for Bitcoins—5,362 of them. At the time, the digital currency was exchanging hands at US$73.00, which means the house was available for about $395,000. (Source: “Canadian house first on sale for Bitcoin currency,” RT.com, March 25, 2013.)
The listing was considered a risky (and bizarre) idea; after all, the digital currency is experimental, decentralized, and can be transferred to anyone, anywhere in the world. Until recently, it was debatable as to whether or not this currency would even gain traction.
Because it is digital, the currency does not exist in a physical sense. It also isn’t issued by any central bank, and that might be part of the appeal; without a central bank, accounts cannot be seized or frozen. (That’s an attractive point for those in Cyprus who had 10% of all savings and deposits seized by the government.)
The lack of an intervening central bank also means the currency cannot be manipulated. While the digital currency is regularly being “minted,” there is a limit to how much can be created; this is to prevent inflation. There are currently around 12 million Bitcoins in circulation. After the year 2140, no more will be minted, and the total amount available will stand at a maximum 21 million.
Still, the price of a Bitcoin can fluctuate wildly. First introduced in early 2009, the digital currency floundered, coming in at about US$14.00 earlier this year. Now, the digital currency is “worth” around $1,080. Had the above-mentioned house sold for 5,362 Bitcoins, and had the owner held onto those coins, his … Read More
A while ago, I was given advice about how to manage an investment portfolio for long-term investing. It went something along the lines of “When there’s a gold rush, invest in shovels.” The idea behind this is very simple: during a gold rush, those who are looking for gold will need shovels to dig, regardless of if they find the shiny yellow metal or not. As a result, the shovel sellers will always profit—possibly making more than those who were looking for gold!
This investment advice should not be taken literally, as I doubt many shovel for gold now; however, it can be used across the board in a more general sense. Investors who are looking to grow their portfolio can add companies that provide services to a certain sector that’s hot or witnessing robust growth.
To find those companies, investors have to look at the big picture, and then narrow it down from there using a top-down approach. They can find the “next big thing” for their portfolio by taking the following steps.
The first and most important step to grow your portfolio and look for the “rush” is to see what is happening in the overall economy; this can provide an idea of where the next big trade is going to be. For example, since the financial crisis in the U.S. economy ended, we have seen many jobs created in the service sector; one industry that can profit from this trend is the staffing and outsourcing companies.
Not all shovels are the same. Some are very efficient and easy to use, while others, not so … Read More
The financial crisis struck the U.S. economy five years ago. Those who remember the collapse of Lehman Brothers know how much uncertainty was actually there. It seemed the U.S. economy was going to halt and the financial system would collapse. Ripples across the global economy were felt. Nothing looked safe—it was a total bloodbath. Investors had many questions, including if they would be able to protect their nest eggs.
As a result of all this, to fight the uncertainty and handle the issues at hand, the U.S. government and the central bank jumped in and started to spend. They bailed out the big banks in the U.S. economy to make sure everything would continue to run smoothly. We passed through that successfully, and the worst didn’t come upon us.
Sadly, as all this happened, we saw troubling trends starting to form in the U.S. economy.
Look at the national debt.
As the government started to rev up its spending spree, it posted a budget deficit and eventually borrowed money. To give you some idea, in January of 2008, when the behemoth was starting to awaken, the national debt of the U.S. economy stood at $9.2 trillion. Fast-forwarding to now, it stands at $16.7 trillion. Simple math suggests this is an increase of more than 81%. (Source: “The Daily History of the Debt Results,” Treasury Direct web site, last accessed September 20, 2013.)
Unfortunately, it doesn’t end here. Not too long ago, Treasury secretary Jack Lew sent a letter to the U.S. government saying that if they don’t increase the national debt limit currently in place by October, the U.S. economy … Read More
To put it mildly, natural gas simply doesn’t get as much attention as crude oil, or even gold. Mr. Speculator, my good old friend, once said, “Why would you want to even bother looking at it? The prices have collapsed and have been ranging for years.” It’s certainly true that natural gas prices have come down from where they used to be. Just take a look at the chart below to see what has happened to the price of natural gas in the past few years.
Not very long ago, natural gas prices were trading above $13.00 in 2008. Now, they are below $4.00; that’s a decline of almost 70%. With this, one should really wonder if natural gas has any future. Is this commodity even worth paying any attention to?
As I dig further into the details, I see natural gas prices going higher in the future. When this will happen is very hard to predict, but all the cases are pointing towards that conclusion.
When it comes to evaluating the prices and their direction, the most important factor I look at is the supply and demand, be it for gold, silver, oil, or any other commodity, for that matter. The basic rule of economics suggests when the demand goes up and the supply stays the same or declines, the price increases.
Chart Courtesy of www.StockCharts.com
This is exactly what is happening when it comes to natural gas.
Let’s backtrack a little. In the first half of 2013, 39% of electricity in the U.S. economy was created using coal-fired plants. This is troublesome, because the U.S. government is actively … Read More
There’s a rush happening in the U.S. economy, but no one seems to have heard much about it. No, it’s not for gold, silver, or oil. This time around, it has to do with rare earth elements, or what are sometimes referred to as rare earth metals.
Before going into further details about how investors may be able to profit from this situation in the making, it is necessary to know what these rare earth elements are and what they are used for.
Rare earth elements, at the very core, have many different uses. They are used in technology like cell phones, televisions, and lighting systems. They are also used in aerospace, automotive, and energy industries. Note that these are just a few of the uses of rare earth elements; there are many other uses for them, as well.
How critical are rare earth elements? According to Ian Ridley, director of the U.S. Geological Survey Central Mineral and Environmental Resources Science Center in Colorado, “without rare earths we’d be back to having black-and-white cellphones again.” (Source: “Gold rush trash is Information Age treasure,” USA Today, July 21, 2013.)
One must ask the question: why call it a rush?
As their name suggests, these elements are rare, found only in certain locations. This leaves them vulnerable to demand and supply shocks.
As a matter of fact, we saw something similar back in 2011. A rare earth element called neodymium, used in the automotive industry, could be purchased for $15.00 a kilogram in 2009. Fast-forward to 2011, and the price of this rare earth element reached $500.00 a kilogram; that’s an increase … Read More
Whether the price of oil and gas is moving up, down, or sideways, the commodity still needs to get transported somewhere. And with a slowly improving economy, the U.S. oil and gas pipeline infrastructure will be called upon to move more and more liquid gold.
Today, America’s natural gas pipeline network is made up of 210 different systems covering 305,000 miles of interstate. In the United States, 55,000 miles of trunklines move 5.6 million barrels of oil each day. (Sources: “Natural Gas,” U.S. Energy Information Administration web site, last accessed July 23, 2013; Alerian MLP ETF web site, last accessed July 23, 2013.)
But thanks to America’s soaring oil boom, the demand for pipelines and other oil and gas infrastructure is expected to climb significantly over the next few years. Pipeline demand in the Bakken Shale in North Dakota is where the majority of demand will come from. The Keystone XL pipeline winning federal approval will also drive North American demand.
There is also a huge demand for liquid natural gas south of the border. Mexican imports of U.S. natural gas have jumped 92% since 2008, and with increased demand, Mexico could be the destination of 10% of U.S. production. To help meet that demand, the U.S. has at least six new pipeline projects aimed at sending gas southward under consideration. (Source: Forest, D., “A surprising source of demand for US natural gas,” The Christian Science Monitor, July 4, 2013.)
As it stands, between now and 2016, the demand for oil and gas infrastructure is expected to climb more than six percent each year, hitting $12.0 billion. In 2011, the … Read More
During the financial crisis, investors saving for retirement were punished for staying in the stock markets. The key stock indices plummeted and took many investors’ wealth.
After seeing the crash taking a heavy toll on their portfolios, investors moved into safer asset classes. They rushed to bonds, gold, and gold miners because they thought that’s where the value was—and where they could make some of their lost savings back.
Things are different now. If investors are still tied to those asset classes, chances are they are feeling a pinch. Gold prices are down significantly from their peaks and bond prices appear to be in a freefall. Since the beginning of the year, gold has fallen nearly 30% in value, and bond yields—those of 30-year U.S. bonds—have soared more than 20%.
Sadly, even with all the financial innovation, there isn’t an investment instrument that protects an investor’s portfolio completely from market fluctuations. However, investors can minimize their downside risks significantly by managing their risk properly.
Managing risk may sound like an easy concept at first, but it’s far from it. It ultimately consists of three steps and requires a significant amount of research. The three risk-management steps are risk identification, risk evaluation, and risk reduction.
Risk Identification: This is the most important part in risk management. Investors need to find what kind of risks will affect their portfolio. For example, imagine a person heavily invested in one sector; even if he or she is diversified across different companies, troubles can take a chunk out of their portfolio. Take gold as it stands now: even if investors bought different gold miners when … Read More