Daily Gains Letter

interest rates


EZCORP and Green Dot to Profit from America’s Coming Reckoning?

By for Daily Gains Letter | Feb 25, 2015

EZCORP There’s a financial reckoning coming, folks. The easy money pushed through the financial system and economy by the Federal Reserve over the past several years may have given us this six-year bull stock market, but it has also allowed personal debt loads to amass. Heck, even the government has accumulated in excess of $18.0 trillion in debt. But there’s an investment opportunity that could emerge from this.

Investment Opportunity Coming as Interest Rates Rise?

For now, with interest rates near zero, everything is fine. But rates will likely begin to move higher by as early as halfway through this year. With higher rates come a heavier debt burden and financing costs, which will eat the disposable income consumers would otherwise use for spending.

Bankrate.com released a survey that pointed to the growing build-up of debt by Americans. In a survey of 1,000 adults, it was found that 37% have credit card debt that is equal to or greater than their emergency savings. This doesn’t even include other debts, such as mortgages or loans.

What this means is that we could see a financial collapse as interest rates rise. There are already 48 million Americans using food stamps, and this may increase. But while the situation could surely worsen, there will be an investment opportunity. To play this scenario, look for companies that can benefit from a declining middle class and those struggling with their finances.

How to Profit from Rising Interest Rates and Debt: Two Stocks to Watch

A good example of the type of stock to watch during this potential investment opportunity is EZCORP, Inc. (NASDAQ/EZPW), which has a … Read More


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

By for Daily Gains Letter | Nov 5, 2014

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

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

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

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

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

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


Investing in a Post-QE3 Market

By for Daily Gains Letter | Oct 31, 2014

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

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

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

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

We are at what I would call a crux.

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

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


The Sector That Continues to Benefit from Low Interest Rates

By for Daily Gains Letter | Oct 7, 2014

Benefit from Low Interest RatesA sector that has truly benefited from the low-interest-rate environment over the last several years has been the automobile sector, which could now be an investment opportunity.

Armed with financing rates as low as zero or free money, car buyers have been rushing to the dealers looking for a new set of wheels.

Rising per-capita income levels around the world, especially in the emerging markets in China, Asia, and Latin America, have all combined to drive up demand.

Investment guru Warren Buffett just announced last week that his fund Berkshire Hathaway, Inc. (NYSE/BRK-A) would add a majority stake in Van Tuyl Group, which is the fifth largest auto dealership group in the country. Clearly, Buffett is positive on the auto sector as an investment opportunity.

The price chart of the S&P 500 Automobiles & Components Industry Group Index shows the recovery in the sector from mid-2012 to its peak in mid-2014, prior to the recent bout of selling that drove the index below its 50-day moving average (MA). Despite this, I continue to like the sector as a possible longer-term investment opportunity and would advise buying on weakness.

S&P 500 Automobiles & Components Industry Group Chart

Chart courtesy of www.StockCharts.com

In addition to the obvious low financing rates, the U.S. auto sector is on much better footing now as an investment opportunity than it was prior to the recession in 2008. After undergoing major structural changes over the past few years since the bankruptcy of General Motors Company (NYSE/GM) in June 2009, the sector has become more efficient and cost-conscious. It’s also more in tune with the needs of its customers, whether it’s through the development of more … Read More


What It Means: Dow Fails to Hold Above 17,000 for Sixth Time

By for Daily Gains Letter | Sep 29, 2014

Sound Defense Can Increase Your Investing SuccessLast week was not a great week for chart watchers. The DOW lost 223 points on Monday and Tuesday and was down another 225 points to below 17,000 on Thursday morning.

What concerns me is that this is the sixth time the DOW has failed to hold above 17,000, which is a red flag that suggests vulnerability is on the horizon. There clearly appears to be a multiple top formation in place that could be difficult to break in the short-term, based on my technical analysis.

The small-cap Russell 2000 is also in trouble after the emergence of a bearish death cross on the chart last week when the 50-day moving average (MA) fell below the 200-day MA. Small-cap stocks tend to have a higher beta and generally are the first to be dumped as overall stock market risk rises.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

At this point, you will need to be careful, especially when looking at higher-risk stocks.

Just like in sports, you will need a sound defense as part of your overall portfolio strategy. In sports, a strong defense is what leads to a win. The same can be said for the stock market.

The stock market is in its fifth year of growth. The S&P 500 is up 200% in that time. Given this and the fact that the economy and corporate profits are not growing rapidly, it would not be a surprise to see a stock market correction in the works.

The chart of the S&P 500 shows we have not had a stock market adjustment for quite some time and are due for one.

S&P 500 Large Cap Index Chart

Chart … Read More


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

By for Daily Gains Letter | Sep 22, 2014

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

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

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

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

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

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

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


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

By for Daily Gains Letter | Sep 22, 2014

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

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

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

And the Federal Reserve may do the very same.

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

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


How to Hedge Against a Stalling Global Economy

By for Daily Gains Letter | Sep 17, 2014

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

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

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

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

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

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

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


Looking for a Good Gold Play? Here’s What to Watch For

By for Daily Gains Letter | Sep 8, 2014

Looking for a Good Gold PlayI have not talked about gold for some time, as there has been no reason to get excited about the yellow metal. Yes, it’s shiny, but it doesn’t appear to be sparkling at this time.

After the gold bugs got excited about the opportunities in the precious metal, pushing prices to above $1,300 following the onset of geopolitical issues in both Ukraine and the Middle East, the aftermath has been dull.

As I said back in June, the only reason I would trade gold would be to buy on weakness near $1,200 as the fundamentals, in my view, are irrelevant at this time. Gold still seems to be more of a geopolitical trade. (See “How to Make Quick Profits in Gold at This Time.”)

Look, there’s no big buying from India; China is buying, but it is simply not enough to sway the global supply/demand balance in favor of the yellow precious metal.

Gold Bugs Index Chart

Chart courtesy of www.StockCharts.com

Consider the fact that the greenback has been edging higher, with the U.S. dollar index at its highest level in more than a year. This move makes the dollar-denominated gold more expensive for foreigners, who have traditionally been major purchasers. The end result is a letdown in demand for the yellow metal.

In my view, gold is simply a trade on the geopolitical risk, as there’s really no major reason to want to buy at this juncture, given the market’s underlying fundamentals.

The gold bugs clearly don’t want to hear this, but I believe that unless the situation in Ukraine or the Middle East worsens, prices could head lower, towards $1,225 or even … Read More


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

By for Daily Gains Letter | Aug 27, 2014

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

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

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

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

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

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

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

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


How to Survive This Stock Market

By for Daily Gains Letter | Aug 22, 2014

Survive a Stock Market with Little ChoiceThe bulls are out in full force again following a pause in the stock market. Investors were initially spooked by the fear of interest rates moving higher in the first quarter of 2015, but that appears to have been pushed to the backburner now as the stock market rally reignites.

The thing is there are few real alternatives to the stock market—unless you are happy with the 2.42% yield on the 10-year bond. Personally, I would rather invest in dividend paying stocks.

There’s nothing spectacular about the stock market and economy at this time. Things seem to be moving just enough to warrant buying and optimism in the stock market.

Jobs are being generated at an average 200,000 per month and the unemployment rate is at 6.2%. These are okay metrics, but we need to see higher jobs numbers going forward.

Housing market growth returned some strong readings in July, with both housing starts and building permits growing at an annualized one billion units, which is excellent.

Consumer sentiment is lagging somewhat, but the stock market is simply pleased that the reading has not plummeted.

This seems like a Goldilocks recovery—not too hot, not too cold, but just enough growth.

The stock market has edged higher in six of the past nine sessions with several key technical moves on the upside as of Tuesday.

Blue chips, which have been comatose, are showing some movement, with the DOW back above its 50-day moving average (MA) and returning to the positive side for this year. As we move ahead, the DOW will likely take another run at 17,000, which has been broken … Read More


The Next Best Move for Investors

By for Daily Gains Letter | Aug 8, 2014

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

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

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

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

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

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


How to Play the Strong GDP Growth

By for Daily Gains Letter | Aug 4, 2014

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

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

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

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

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

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

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


Why This Company Will Fare Well as the Economy Stutters

By for Daily Gains Letter | Jul 28, 2014

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

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

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

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

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

Dick’s Sporting … Read More


How to Profit from This Housing Market Oversight

By for Daily Gains Letter | Jul 18, 2014

How to Profit from Improving Homebuilder SentimentThe housing market continues to show growth and offer a good buying opportunity. While the major upward push in the housing market may be behind us, I still see opportunities.

As long as interest rates and mortgage rates remain relatively low, you can expect the support for the housing market to hold for the next few years.

While housing starts and building permits numbers continue to be fairly strong, the National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index (HMI), which reflects the confidence of the homebuilders, increased to a healthy reading of 53 in July, up from 49 in June. A reading above 50 indicates positive sentiment in the housing market. It was the first move above 50 since January.

And the key components of the HMI point to optimism. The reading that reflects expectation for future sales jumped to 64. (Source: “NAHB, Builder Confidence Surpasses Key Benchmark in July,” National Association of Homebuilders web site, July 16, 2014.)

The HMI suggests the housing market will continue to show steady growth. As an investor, you may consider buying the homebuilder stocks or the suppliers of building materials to the industry.

A small-cap housing market play on the residential and commercial building markets that I like is Installed Building Products, Inc. (NYSE/IBP), which has a share price of $12.22, a post–initial public offering (IPO) range of $11.75–$15.47, and a market cap of $373 million. The company was recently listed in February at $12.30; so the stock has done little, which in my view, represents a buying opportunity for investors.

Installed Building Products Inc Chart

Chart courtesy of www.StockCharts.com

While the company is new on the … Read More


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

By for Daily Gains Letter | Jul 14, 2014

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

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

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

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

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

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


Getting Ready for the Stock Market’s Coming Bumpy Ride

By for Daily Gains Letter | Jun 27, 2014

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

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

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

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

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

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


Why I Believe This Market Is Heading Higher—For Now

By for Daily Gains Letter | Jun 11, 2014

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

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

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

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

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


How You Could Still Profit from Gold Despite Weakness

By for Daily Gains Letter | Jun 4, 2014

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

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

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

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

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

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

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


How to Safeguard Your Portfolio from the Coming Housing Crisis

By for Daily Gains Letter | May 22, 2014

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

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

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

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

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


Profitable Investment Opportunities in a Fragile Housing Market

By for Daily Gains Letter | May 8, 2014

Housing Market  Fragile Investment OpportunitiesThe housing market continues to hold. But there are some warning signs. Famed investor Warren Buffett suggested the housing market was overvalued and due for an adjustment.

Now, while there are some indications of an overhyped housing market, I’m not convinced it’s bubble-like quite yet. But be warned: mortgage rates and interest rates are heading higher. This means it will become more expensive to finance mortgages going forward.

We are already seeing some fragility in the housing market on nearly all fronts. Home prices continue to edge higher across the nation, but that’s because of the limited inventory in the housing market.

Pending home sales, a good indicator of what is to happen on the horizon, fell eight percent in March based on data from the National Association of Realtors (NAR).

Housing starts were weaker than expected in March, with 946,000 annualized starts in the month, below the consensus 970,000. Worse yet was the March building permits reading that showed an annualized 990,000 in the pipeline, below the consensus estimate of 1.01 million and the 1.018 million in February. The soft showing is a red flag that points to some stalling ahead.

Of course, the horrible winter conditions across the country were largely blamed, but with the warmer months ahead of us, there will be little excuse if we see weaker numbers. This is especially true since the jobs market is showing some increasing strength.

Given what we’re seeing in the housing market, I would be hesitant to jump in and buy the homebuilders. A good alternative in the housing market would be to play the companies in the area … Read More


How to Profit 10X the Rise in Bond Yields

By for Daily Gains Letter | Apr 28, 2014

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

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

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

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

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

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

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


My Favorite Pick in the Retail Sector Is Not What You’d Think

By for Daily Gains Letter | Apr 14, 2014

Variables Aligning for Retail to Outperform 2013The retail sector can return some amazing gains as we have witnessed since the recession ended—but it can also provide periods of anxiety.

How the retail sector performs is dependent on many variables, including the economy, jobs, housing, consumer confidence, interest rates, and even the weather, as we witnessed this winter.

There is no tried-and-tested rule on what areas of the retail sector do well. For instance, if you think discount and big-box stores always fare the best, while high-end luxury-brand stocks underperform during times of economic uncertainty, then you are likely off the mark.

The reality is that the past years of massive wealth creation in the stock market and a rebounding housing market have helped to create wealth, and with this comes the desire to spend. There have been some 300,000 new millionaires created in the country in 2013, and that means a propensity to want to spend specifically on higher-end goods and services.

The rationale supports why luxury stocks, such as Michael Kors Holdings Limited (NYSE/KORS) and Tiffany & Co. (NYSE/TIF), have done so well over the past few years. In the luxury retail sector space, Michael Kors continues to be one of my favorite retail sector stocks.

KORS Michael Kors Holding Ltd Chart Chart courtesy of www.StockCharts.com

Meanwhile, the bottom end of the retail sector, which includes the discount and big-box stores, has provided mixed results; albeit, these stocks have made investors a lot of money.

One of my favorite discount stocks in the retail sector is Family Dollar Stores, Inc. (NYSE/FDO). But the company recently reported a soft fiscal second quarter, in which same-store sales fell 3.8% in the quarter; year-over-year, … Read More


How to Protect Your Portfolio and Profit as Interest Rates Rise

By for Daily Gains Letter | Apr 9, 2014

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

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

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


Why a Soft First Quarter Offers Hope

By for Daily Gains Letter | Apr 3, 2014

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

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

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

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

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

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


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

By for Daily Gains Letter | Apr 2, 2014

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

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

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

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

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

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

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


How to Turn Disappointing Housing Data into Greater Returns

By for Daily Gains Letter | Mar 31, 2014

Disappointing Housing DataSince the beginning of 2012, the U.S. housing market has been considered one of the bright spots in an otherwise uneven economic environment. Between 2007 and the end of 2011, the U.S. housing market fell 33%—since then, it has rebounded, climbing roughly 22%.

While the rebound in U.S. housing has been robust, it’s still 18% below the 2007 pre-housing bubble market crash high, meaning there’s still plenty of room for growth. Unfortunately, the so-called silver lining around the U.S. housing market is starting to thin—or rather, some are finally starting to recognize there is a disconnect between the rising values of the U.S. housing market and overall housing market data.

For example, existing-home sales, which represent about 90% of housing purchases, fell 0.4% month-over-month in February and 7.1% year-over-year to their lowest level since July 2012. This comes on the heels of disappointing January data, where existing-home sales fell 5.1% month-over-month—the fifth decline in six months.

February new-home sales fell 3.3% month-over-month to a seasonally adjusted rate of 440,000, the lowest level in five months. To add insult to injury, the National Association of Home Builders/Wells Fargo index of builder confidence rose less than forecast in March and is close to its lowest level since May 2013.

February’s pending U.S. housing market sales data is just as disappointing—though not entirely surprising. Pending home sales (excluding new construction) fell 0.8% month-over-month and an eye watering 10.5% year-over-year, the lowest level since October 2011. (Source: “February Pending Home Sales Continue Slide,” National Association of Realtors web site, March 27, 2014.)

In spite of February’s pending home sales data representing the eighth consecutive … Read More


Three Silver Plays That Can Weather a Short-Term Downturn

By for Daily Gains Letter | Mar 27, 2014

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

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

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

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

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

Silver and gold prices fell lower in … Read More


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

By for Daily Gains Letter | Mar 26, 2014

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

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

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

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

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

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


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

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

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

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

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

Why the concern?

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

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

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


Three Stocks to Profit from New and Old Cars Alike

By for Daily Gains Letter | Mar 25, 2014

Stocks to Profit from New and Old CarsSpring is finally here, but that certainly doesn’t mean corporate America will cease to use the cold weather as an excuse for abysmal corporate earnings. Throw a dart at any sector, and you’ll find CEOs blaming the weather in some capacity—well, save for the utilities companies.

One sector that might be able to (on some level) justifiably blame the weather for a weak start to the year is the auto sector. Overall, U.S. auto sales were up eight percent year-over-year, while Canadian auto sales were up four percent. (Source: Isidore, C., “Car sales make a strong comeback in 2013,” CNN Money web site, January 3, 2014.)

In 2013, U.S. auto sales topped 15 million for the first time since 2007. While auto sales of 15.6 million were below the 16.0 million forecast by analysts, it was still an encouraging sign for the auto industry. Ford Motor Company’s U.S. sales were up 11%, while Chrysler Group LLC saw its sales climb by nine percent, and General Motors Company reported a 7.3% increase.

The 2013 auto sales data is encouraging in light of the disappointing December sales numbers; this also happened to coincide with the start of the dastardly winter of 2014. The weak end-of-the-year auto sales sentiment skidded over into 2014. Auto sales missed both their January and February expectations.

So far, 2014 has been good for global auto sales. Global sales hit record territory in February, climbing seven percent year-over-year. Auto sales in China climbed 22%, while car sales in Western Europe climbed year-over-year for the sixth consecutive month. Spain led the way with an 18% jump in auto sales. … Read More


What’s Handicapping First-Time Homebuyers?

By for Daily Gains Letter | Mar 24, 2014

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

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

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

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

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


How to Increase Your Profits as Monetary Policy Tightens

By for Daily Gains Letter | Mar 21, 2014

Federal ReserveThe verdict is in…

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

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

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

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

What happens next?

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

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


Three Stocks for Celebrating the Bull Market’s Fifth Anniversary

By for Daily Gains Letter | Mar 12, 2014

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

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

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

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

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

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


How Global Debt of More Than $100 Trillion Is Threatening Your Portfolio

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

Global DebtThere is a recent statistic that is quite shocking: the total amount of debt globally is now over $100 trillion, a jump of 40% over the last six years.

According to the Bank for International Settlements, which is run by 60 central banks, since the financial crisis, the majority of the $100 trillion in debt has been issued by governments and nonfinancial corporations. (Source: “March 2014 quarterly review,” Bank for International Settlements web site, March 9, 2014.)

You would think that with such a huge amount being issued, it would drive interest rates higher amid a debt crisis. But as we all know, the exact opposite has occurred with interest rates still near historic lows.

What’s really shocking is that governments and corporations have borrowed and pumped out a massive amount of money, yet the global economy is barely moving. We know why corporations have issued the debt; with interest rates low, it does make sense to take advantage of the environment, borrow money, and fund share buybacks and dividends.

Of course, it makes one ask the question—if high levels of debt fueled the previous debt crisis, can we fundamentally solve this problem with even more debt? Not likely.

The real question for investors who are allocating capital to these markets is: are they suitable for long-term investors, or should we consider if a debt crisis is possible?

With the situation in Ukraine deteriorating along with other parts of the world, such as Venezuela, this is creating a flight to the perceived quality of the bond market in the developed world. However, long-term, I’m not so sure.

With the U.S. … Read More


Can This Precious Metal Save Your Portfolio from the Rising Tensions in Crimea?

By for Daily Gains Letter | Mar 5, 2014

key stock indicesThese 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


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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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


Top-Yielding Stocks to Combat Low Interest Rates

By for Daily Gains Letter | Feb 13, 2014

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

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

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

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

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


Where to Find the Best Opportunities in Emerging Markets

By for Daily Gains Letter | Feb 13, 2014

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

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

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

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

Where are the opportunities in the emerging markets now?

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


Two Ways to Profit from the Economic Turmoil in Emerging Markets

By for Daily Gains Letter | Feb 7, 2014

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

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

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

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

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

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


Top Strategies for an Economically Engineered Market

By for Daily Gains Letter | Feb 3, 2014

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

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

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

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

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

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

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


How to Profit from the Collapse in Emerging Markets

By for Daily Gains Letter | Jan 30, 2014

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

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

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

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

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

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


Top Four Stocks for Income During Period of Low Interest Rates, Bond Yields

By for Daily Gains Letter | Jan 23, 2014

Top Four Stocks for IncomeAn interesting conversation on investments surfaced recently at a dinner party with some friends. The topic was whether it was better to buy large-cap dividend-paying stocks, such as General Electric Company (NYSE/GE) and The Procter & Gamble Company (NYSE/PG), or look at smaller dividend-paying companies.

Of course, I spontaneously said it depended on a host of factors, including the risk appetite of the investor and the economy.

When the economy is growing, and especially as it emerges from a recession like we saw it 2008, it would be advantageous to stock up with smaller dividend-paying companies. The reason is because small companies tend to fare better when adjusting out of a slow period than larger companies, which take much more time to strategize and put a plan into effect.

Another way of looking at it is that it’s easier to steer a smaller boat versus a larger ship in calm waters, but when it gets rough out there, I would rather stay on a bigger ship. The same analogy applies to the question of small-cap versus big-cap stocks.

Now, as far as dividends are concerned, the most important thing is the underlying strength of the company and its previous and forward ability to pay dividends. You want to buy dividend-paying companies that have a valid and sustainable business—no fad stocks here.

Another major monetary benefit of small dividend-paying stocks is the much superior upside price appreciation potential that’s often associated with small-cap stocks. So while companies like General Electric and Procter & Gamble will consistently do well over decades, in the short run, adding some small dividend-paying stocks can help … Read More


As Consumer Confidence Wavers, Gold Bugs Come Back from the Sidelines

By for Daily Gains Letter | Jan 21, 2014

Consumer Confidence Declines, Gold Prices Back from the DeadIf 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


Time to Go Against the Key Stock Indices?

By for Daily Gains Letter | Jan 6, 2014

Key Stock IndicesTrading for 2014 has begun. In 2013, we saw massive moves on the key stock indices—something we have only seen a few times. For example, the S&P 500 moved up by almost 30%, and the NASDAQ Composite increased by more than 35%. Those who were long saw their portfolio grow, and those who went against the key stock indices probably had to question their strategy and re-allocate the capital.

You can see for yourself in the chart below: key stock indices such as the S&P 500 maintained an upward trajectory throughout the year—and without any major hiccups.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

The average return on the S&P 500 between 1970 and 2012 was 8.2%; on the Dow Jones Industrial Average, it was 7.9%; and on the NASDAQ Composite, it was just slightly more than 13%. (Source: “Historical Price Data,” StockCharts.com, last accessed January 2, 2013.)

Sadly, these numbers only indicate past performance. With the beginning of the new year, investors have one main question in mind: where are the key stock indices going to go in 2014? Will we see a decline or are we in for another stellar year?

The year 2014, I believe, is going to be an interesting year for stock investors. The rally in the key stock indices that started in 2009 continues to march forward. As this is happening, the fundamentals that act as fuel for the stock market rally are becoming anemic. This should be noted, because without fundamentals becoming stronger, key stock indices can only go so far.

For instance, on the surface, the U.S. gross domestic product (GDP) looks better than before, … Read More


Economic Indicators Pointing to Weaker Growth in 2014

By for Daily Gains Letter | Jan 6, 2014

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

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

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

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

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


The Contrarian: Why I Think Stocks Will Rise in 2014

By for Daily Gains Letter | Jan 6, 2014

Stocks Will Rise in 2014Now 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


How to Profit from the Market’s Change of Heart Toward Tapering

By for Daily Gains Letter | Dec 23, 2013

Market’s Change of Heart Toward TaperingInvestors are a surprising lot. Since May, any suggestions about tapering by the current Federal Reserve chairman, Ben Bernanke, or even one of the dozen district Federal Reserve economists, sent the markets reeling.

Back in May, just the whisper of a hint from the Fed that it might consider tapering its $85.0-billion-per-month bond buying program was enough to stop the bull market in its tracks. It recovered, of course, but only after Bernanke soothed the markets by saying he had no intention of pulling back on the Fed’s quantitative easing (QE) policy anytime soon.

The general fear, of course, was that any reduction in QE would translate into an immediate rise in interest rates. Having kept interest rates artificially low (near zero), the Fed made it cheaper for people to borrow. As a result, these artificially low interest rates are generally recognized as being the fuel that’s been propelling the stock market increasingly higher.

The Federal Reserve quashed those fears last week after announcing a $10.0-billion monthly cut in its QE strategy by telling investors it wouldn’t raise interest rates until unemployment hits 6.5%. By the Fed’s own estimates, the country will not hit this target until late 2014 to mid-2015. So, artificially low interest rates live on.

The assurance of cheap money kept the markets upbeat; so much so that the following day, the Dow Jones Industrial Average and S&P 500 opened at record highs, and the NASDAQ opened at a 13-year high.

News on a few key economic indicators released last Thursday, the day after the Federal Reserve’s announcement, probably didn’t hurt either, as these indicators suggested the … Read More


Corporate Earnings Up 46% YOY for This Global Auto Stock

By Sasha Cekerevac for Daily Gains Letter | Dec 20, 2013

Corporate Earnings UpWhat does it take to develop a successful, long-term investment strategy?

This is the correct question to ask, rather than asking simply which stock(s) to buy. To be successful over the long term, you need to have a comprehensive investment strategy that takes into account your goals and risk parameters.

Having said all of that, at the end of the day, I’m looking for a company that has both an attractive valuation and the ability to increase corporate earnings at a rate above market expectations.

One way to develop an investment strategy is to look at the factors driving corporate earnings for a specific industry and individual company.

A great example is the automotive sector and Honda Motor Co., Ltd. (NYSE/HMC). Based in Japan, Honda actually has several different segments that they sell into, with automotives being their most commonly known products sold worldwide.

HMC Honda Motor Co Ltd

Chart courtesy of www.StockCharts.com

Why do I think corporate earnings will continue rising at Honda, and what factors am I considering when looking at this stock as part of an investment strategy?

Looking at the automotive industry here in America, sales are obviously soaring now compared to what we’ve seen over the past few years. Is there any real sign that this will change anytime soon? I don’t believe so, and I think cheap financing will continue for some time.

Globally, car sales will continue to increase as many nations around the world are keeping interest rates low, creating cheap financing.

Another reason I believe Honda will continue to rise is the policies stemming from the Bank of Japan and the government of Japan. For those … Read More