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How Long into the Selloff Should You Wait to Pick Up Bargains?

The S&P 500 is down 7% within the last month and was down 9% before recovering slightly. Many bears are now convinced that the end of the bull market is upon us and that the market is due for a more significant downturn. Our question is how long into the selloff should you wait to pick up bargains? CNBC writes that the selloff is not over.

“This is the second decline of this year of 5 percent or more and two out of every time we had more than one decline in a year, the second decline was sharper than the first,” Stovall said. The S&P 500 dipped to 2,710 last week, a 7.8 percent decline from its all-time high in late September. In February, the S&P was down nearly 12 percent at its low. “There could be a test of the lows.

Successful long term investors stay in the market through its ups and downs. And successful long term investors are sure to buy at the low points. The point of value investing is based largely in assessment of intrinsic stock value. And, the intrinsic value of an investment is based on its forward-looking earnings potential, not its lowest price as investors pile out of the market to avoid more losses.

How Long Should You Wait?

The market keeps rising and falling. This sort of volatility tells us that many investors are getting out because they think that the bull market has run its course and is ready to crash. And, many investors think the market still has room to run so they are buying on the down-swings. Seeking Alpha writes about whether or not this is the start of a bear market.

This is still a bull market.

The bull market doesn’t have a lot of room left, probably 1 more year.

Leading economic indicators continue to improve, which is long term bullish for the stock market & economy.

The Freight Transportation Services Index is still trending higher. Historically, this leading indicator tanked or swung sideways for many years before bear markets and recessions began.

That having been said, if you believe what these folks are saying, stay in the market a little longer and don’t start looking to see bargains until sometime in 2019. But, is this the only opinion?

Forbes writes about what to do after a stock market crash, so they are thinking this could happen in the near future. They suggest that you consider what will be good long term investments and then pick up bargains when the market tanks.

Think about the products and services you spend your money on. They may be a place to start looking for potential investments. What are the trends today that will continue for years? For example, are health care companies something that could have strong sales for years to come? Perhaps they are worthy of further investment research. For instance, are they undervalued or overvalued? What is their earnings growth rate? Is it sustainable? Is it steady? What is their relative strength compared to their competitors? Are insiders buying?

This is the long term, value investor, intrinsic value approach that has served many so well over the years. If you believe what Seeking Alpha has to say, you have a few more months until there will be bargains available and if you believe Forbes, you should start thinking about long term investments to make when the big correction finally happens.


How to Minimize Your Investment Losses in the Next Recession

The current volatility in the US stock market is reminiscent of the days preceding both the dot com crash and the 2008 market crash that ushered in the Great Recession. It may well be time to consider how to minimize your investment losses in the next recession. The 2008 crash destroyed about $7 trillion in equity value. A crash today might destroy as much as $20 trillion in equity value according to Investopedia.

The recent stock market retreat, which has sent the S&P 500 Index (SPX) down by 5.9% from its intraday high on Oct. 3, has intensified the debate between the bulls and the bears. Outspoken economist, hedge fund manager and market analyst John Hussman is renewing his prediction of a severe market crash that would send major U.S. stock market indices plummeting by 60% or more. He has been warning that stock valuations have been extreme for years, and long overdue for a return to historical norms. Putting this in dollar terms, Hussman recently said that the crash will wipe out $20 trillion of stock market value, Business Insider reports.

Timing a market correction is always difficult. Bears have been predicting this bull market’s demise for years! But all good things do come to an end and that includes rising stock market prices.

Steps to Take to Minimizes Losses when the Market Tanks

Investopedia offers advice from JPMorgan on how to avoid losses in the next recession.

They suggest that bonds will start outperforming stocks as much as a year before the market actually crashes. Rotating some of your profits out of stocks into bonds is their recommendation.
Cyclical stocks will take more of a hit than defensive stocks when the market heads south. Their suggestion is to start moving money out of some of your recent cyclical stock winners into long term growth stocks.

Growth stock prices are based on their earnings. When earnings drop off the stocks without a margin of safety will fall more rapidly than the general market. These folks suggest moving out of growth stocks and starting to buy value stocks.

And, things will get worse in developing markets, especially those economies afflicted by the “resource curse.”

Is This the Time to Buy Gold?

Investing in gold can be profitable if you pick and choose carefully when to buy and when to sell. We wrote about this in 2010.

There are a number of attractive options for investing in gold and there are pitfalls. Gold stock investing includes mining companies and derivatives. Many gold bugs will say that how to invest in the stock market during hard economic times is to invest in gold. However, the true gold bug will advise that you buy and hoard gold bullion or rare gold coins.

When we wrote this, gold was trading at about $1,400 an ounce. It rose for a couple of years to trade briefly in the $1,900 range before falling. Today gold trades at about $1,200 an ounce. The best time to buy gold was in the early 1970s during a period of historic inflation brought on by new social spending and the war in Vietnam. The next best time was in 2000 when interest rates plummeted and war raged in the Middle East. In each case, the price of gold steadily rose until economic conditions improved and it became contra productive to hold an asset that has quit appreciating and did not pay dividends or interest.

ow, however, might be a good time to balance your investment portfolio with a gold ETF or mining stock with the understanding that you will hold the investment for a few years and then rotate back to equities, bonds, or even cash.


How Will the Election Affect Your Investments?

The mid-term elections are almost upon us. It is almost a certainty that there will be a substantial shift in the balance of power in congress. Although smart investors keep their politics and their investment strategies separate, it is still a good idea to consider how the election will affect your investments. In this regard, Forbes has some thoughts about the risk to stocks from the mid-term election.

We currently think there is only one scenario that has a reasonable probability of happening, looking at current political polling. (Yes, we get that polls are flawed but, in the aggregate, they do provide us insight). The highest probability scenario is the Democrats take the House, and Republicans retain the Senate.

Going back to 1934, the President’s party has lost seats in the House 86% of the time in midterm elections.

The bottom line to their argument is that a politically divided congress is worse for investors than when the same party controls both houses. All spending bills must, by law, start in the House of Representatives. But, both houses of congress and the president need to concur for a bill to become law. Divisive issues such as health care immigration will likely be hamstrung for the next two years. Issues such as infrastructure spending, trade, and antitrust law will have some hope of gathering a consensus and getting passed.

Will There Be A Correction and a Recovery?

A couple of months ago we asked if the mid-term elections would cause you to lose money. That analysis ignored who won or lost in mid-term elections and just looked at how the stock market fared afterwards. The insights came from Zack’s Investment Management.

Going back to 1962, the average correction during a midterm election year was an eyebrow raising -19%.
AND
Since 1962, the average bounce for stocks following the midterm correction was a sturdy +31%.

According to these folks, you may lose money going into the mid-term election but gain more afterwards.

What Other Factors Are in the Mix?

There are two issues this year that stand out as risks. The first is the trade war with China and the fact that it may become permanent.

Both the USA and China see the trade war as “zero sum” game. A zero sum game is a situation in which the losses by one side are the gains of another and vice versa. China sees is place in the world as the dominant global economic and political power, which are positions now held by the USA. The USA sees itself as maintaining its place in the world and is justifiably fearful of a world controlled by China.

There may be a point at which neither side will back off of its demands. When that happens, trade between the USA and China will diminish. There is a chance that trade between China and Europe could also suffer is Europe adopts the view of the USA. This would result in different global trade patterns and diminished global trade.

The USA and EU have tiptoed around this China issue for years, taking advantage of cheap production costs while steadily losing manufacturing capacity and giving away trade secrets. That is likely to come to an end and the end may not be pretty. A well-functioning US government would be a positive factor in such a situation. But, that is not what we have today and there does not seem to be a remedy in sight no matter how the mid-term elections work out.

The other factor is the “elephant in the room” with the Mueller investigation into Russian meddling into the 2016 elections and how close that investigation will move toward the president himself. If the results of the investigation cast blame on the president and the Democrats take back the House of Representatives, impeachment is likely. Then the issues will be if the Democrats pick up seats in the Senate and if Republicans will follow party lines (the Trump Party or the Republican Party) with their votes.


Which of Your Investments Will Suffer as Interest Rates Go Up?

The US Federal Reserve has raised interest rates again. And, more rate increases are in the cards for December of 2018 and into 2019. Which of your investments will prosper and which of your investments will suffer as interest rates go up? CNBC weights in on this question with an article about the best performing stocks in the Dow as interest rates go up.

While stocks like J.P. Morgan, Goldman Sachs and Visa do well when rates are surging, Walmart and Coca-Cola struggle.

Walmart averages a loss of 0.8 percent when rates rise 25 basis points or more in one month, the worst performance of any Dow member in those instances since 2008. Coca-Cola, meanwhile, drops an average of 0.4 percent.

Johnson & Johnson, Procter & Gamble and Verizon also average losses when rates rise sharply.

A recurring theme is that stocks which pay dividends act like bonds and decrease in value as interest rates go up!

Is Gold Ready for a Comeback?

The famous Warren Buffett quote is basically that you should invest in stocks that people are fearful of and avoid stocks that everyone loves. This approach often works because the market tends to overshoot to the high side in bull markets and to the low side in bear markets. In this regard Market Watch takes a look at FANG stocks versus BANG stocks.

There’s ongoing fallout from a Bloomberg report that said China planted teeny tiny spy chips in U.S. computers doesn’t look to be over. Big tech names like Apple AAPL, -0.86% came under pressure, weighing on the Nasdaq COMP, -0.58%.

The pain for investors could spread further. Apple is a top holding in the SPDR S&P 500 ETF SPY, -0.20%-a big proxy for the S&P 500-and such passive-investing vehicles have become extremely popular in this long bull market.

That brings us to our call of the day from The Felder Report’s Jesse Felder, who suggests going against the crowd with some cheap, anti-passive precious metals miners.

The so-called “BANG” stocks in mentioned in the article are gold mining stocks.

  • Barrick Gold, ABX
  • Agnico Eagle, AEM
  • Newmont Mining, NEM
  • Goldcorp, GG

These gold mining stocks are at their lowest prices in many years. And, in our article about gold and silver as liquid investments, we noted that when the price of gold starts to rise, gold mining stocks go up faster that gold bullion and when gold starts to fall, mining stocks go down farther and faster.

In the article they also make the point that so many investors have gone over to passive investing via ETFs. Because the FANG stocks are so heavily represented in index funds, they have benefited from this change in how investors invest. And, because these lonely mining stocks are in nobody’s passive investment portfolio, they are more greatly under-priced than one might expect from the price and recent performance of gold bullion. If the stock market gets hurt by higher interest rates, not to mention the trade war between the USA and everyone else, gold may make a comeback and these BANG stocks could do very well on the upswing in gold prices.

Meanwhile take a look at the dividend stocks in your portfolio and decide which of these will suffer as interest rates go up.

Do Your Investments Have Pricing Power?

A trade war is becoming more certain and the effects of the Trump tax cut are wearing off. Which of your investments will retain their value and which will correct? Earnings have been the driver in this bull market. But, which stocks will continue to display strong earnings in a full-fledged trade war? Companies that dominate their market niche are typically able to raise prices without losing many customers. This is pricing power. Do your investments have pricing power?

CNBC writes about stocks to buy to ride out a trade war with China.

Goldman Sachs says there is still an investment strategy that can outperform even if the trade war with China gets worse.
The firm recommended companies with strong and sustainable profit margins.

These are their suggestions with current profit margins.

  • Adobe, 89%
  • Amgen, 86%
  • Celgene, 96%
  • Flowers Foods, 47%
  • PVH, 56%
  • Scotts Miracle-Gro, 35%
  • VMWare, 88%

Adobe

Adobe sold for $16.70 a share at its lowest in February of 2009 and sells for $272.86 today. It is a computer software company best known for the PDF (portable document format), Acrobat reader, Photoshop image editing software, Adobe Creative Suite, and Adobe Creative Cloud. Adobe’s products are top of the line and the first if not only choice for many users. This gives Adobe the pricing power to survive a trade war.

Amgen

Amgen is a successful multinational biotechnology company. Their main focus is developing treatments and medicines using recombinant DNA technology. They have a strong product line and a robust R&D effort. Because they routinely create new medicines that have patents, they have impressive pricing power. Amgen sold for $42 a share in 2008 and sells for $207 a share today.

Celgene

Celgene is another biotech company with a strong product line and robust R&D. They focus on medicines to combat cancer and inflammatory diseases. Like Amgen, they produce new medicines with patents when gives them pricing power. The stock sold for $19 a share in 2009 and $89 today. However, this stock is down from $131 a share a year ago.

VMWare

VMWare is a computer software company that focuses on creating virtual versions of other platforms and services. It is a subsidiary of Dell Computers. Due to its unique software this company is dominant it niche, much like Adobe is. So, it has good pricing power. The stock sold for $19 a share in 2008 and $155 a share today.

Flowers Foods

Flowers Foods produces and markets packaged bakery goods in the USA. From a chain of 46 bakeries they deliver to stores throughout the nation. Their strength lies in a strong brand name, quality merchandise, and great execution. Their stock sold for $9.50 in 2009 and sells for $18 a share today. It briefly sold for $27 a share in 2015.

PVH

PVH is an American clothing company formerly known as Phillips-Van Heusen. Their strength lies in the brands that they own and the ones that they license.

Owned Brands

  • Van Heusen
  • Tommy Hilfiger
  • Calvin Klein
  • IZOD
  • Arrow
  • Warner’s
  • Olga
  • True & Co.
  • Geoffrey Beene

Licensed Brands

  • BCBG Max Azria
  • Chaps
  • Sean John
  • Kenneth Cole New York
  • JOE Joseph Abboud
  • Michael Kors
  • Speedo

The stock sold for $16 a share in 2009 and sells for $139 a share today. Five months ago it sold for $160 a share.

Scotts Miracle-Gro

This company is the industry leader in the home lawn and garden market. Its strong brand names are likely to keep selling even when prices go up. This sort of pricing power in its market niche makes Scotts Miracle-Gro a safe investment in the event of a protracted trade war. The stock sold for $19 a share in 2009 and sells for $79 a share today. Nine months ago it sold for $107 a share.

In the event of a prolonged trade war, niche industries, those that sell exclusively or primarily in the USA and companies whose raw materials come from the USA will have a better chance of avoiding serious losses. The bottom line will be the pricing power that the company has because of a strong brand name or control of its market sector.

How to Spot Overpriced Investments

The S&P 500 has been on a steady upward climb for the last nine and a half years. As the market climbs higher and higher the smart investor needs to know how to spot overpriced investments. Ideally, one has bought low at the beginning of the bull market and can sell high before the market or individual stocks correct. The S&P 500 index is four times greater than it was in February of 2009. However, this year the vast majority of gains within the S&P 500 group have come from a handful of well-known tech stocks. CNBC noted that just three stocks are responsible for most of the gains in 2018.

Amazon, Netflix and Microsoft together this year are responsible for 71 percent of S&P 500 returns and for 78 percent of Nasdaq 100 returns.

The three stocks make up 35 percent, 21 percent and 15 percent of S&P 500 returns, respectively, while making up 41 percent, 21 percent and 15 percent of Nasdaq 100 returns.

While some companies in the S&P 500 are simply appreciating less rapidly than the tech darlings, others are losing ground. The best performers are those with the best and reliable earnings quarter after quarter. The question for the wary investor is how to spot overpriced investments in this mix. In this regard, Market Watch says that the average stock is overvalued.

The offer three charts, all of which demonstrate that the market is flirting with the sort of valuations that preceded the 1929 crash that ushered in the Great Depression, the Dot Com crash, and the 2008 crash that gave us the Financial Crisis and the Great Recession.

The three charts show three things. First, the market is trading about 70% above its historic mean and this has only happened before in the days preceding a crash. Second, the total stock market cap compared to the US GDP is also at a historic high seen only in the days prior to previous market crashes. And, third, the prices of stocks are excessive in relation to the so-called “replacement” value of the companies. This is the Tobin Q ratio. In order to avoid being badly hurt when the market eventually corrects, smart investors can use any or all of these approaches to decide what investments to hold and which to sell.

Margin of Safety

We mentioned that the leading stocks in the S&P 500 are there because of continued great earnings. But, which of these companies is vulnerable to a significant reduction in earnings in the event of a recession. And, which of them has a margin of safety to protect them in the event of a downturn. A margin of safety can be money in the bank or tangle assets like property and factories that are unencumbered by debt. A margin of safety can also be a business whose products and services will not be significantly affected by an economic downturn.

Microsoft has about $82 billion in long term debt. It is also the only US company, besides Johnson and Johnson, to have AAA bond rating. Microsoft also has about $134 billion in cash. Apple has about $97 billion in long term debt and about $244 billion in cash on hand. Both of these companies have significant margins of safety in case of a financial downturn. The question is what happens to their revenue if the economy tanks? Microsoft is no longer so dependent on its Windows software for profits but Apple still needs to come up with the better and more impressive set of smartphones and tablets every year or so.

A margin of safety issue that is appropriate to how to spot an overpriced investment is that both of the companies are in a “high cost of entry” business. This is to say; the development of patents, product lines, and internal skill sets is such that there would be an almost insurmountable cost to replicate either business. This is where Tobin’s Q ratio comes into play. To the extent that a business controls an irreplaceable niche in the tech world, they are protected against financial devastation in the event of a market correction. One of the ways to spot an overpriced investment is to use this sort of analysis or approach.

Simple Steps to Successful Investing

There are many times in life when the “KISS” approach is the best. (KISS = keep it simple, stupid!) Successful investing is one of them. The vast majority of investors have a “day job.” That is to say, they work at something other than managing their investment portfolio. That means that most of us need to follow a few simple steps to successful investing.

Simple Steps to Successful Investing

  • Take advantage of 401K’s, IRAs, and other tax deferred investment vehicles
  • Invest in your home
  • Pay off credit card debt before any other significant investing
  • Keep your investment vehicles simple

IRA’s and 401 K’s

An IRA is an account that you create with a financial institution such as a bank or stock broker. It gives you a way to save with the growth of you investment being tax free or tax deferred.

Issues such as whether you use a traditional IRA or a Roth IRA are important but the most important part is to have your investments increase in value with being taxed until you cash out.

A 401 K is similar to an IRA but it is sponsored by your employer. A common benefit is that your employer matches your contribution each year. Your money grows without being taxed over the years and is only taxed when you withdraw it during retirement when you income is less and your tax bracket is lower.

Buy Your Home instead of Renting

Interest on your home mortgage is deductible on your income tax. This law is meant to promote home ownership and economic stability. Simple steps to successful investing include owning your own home.

Pay Off Credit Card Debt

In our article featuring tips on how to start investing we mention paying off credit card debt.

Before you start putting money into stocks you need to pay off your credit cards because the interest you pay on those is more than a beginner can expect to make on his money in the market.

In fact, the interest paid on credit card debt is greater than many professional investors can reliably make year after year. The first simple step to successful investing is to pay of the credit cards.

The Minimalist Approach to Successful Investing

One of the simple steps to successful investing is to take a minimalist approach as suggested in an article by CNBC.

Life is complicated enough. The number of investment choices in a typical 401(k) plan – about 25, according to a recent report from the Investment Company Institute – is proof.
If you have a current 401(k), an individual retirement account or two, and perhaps a 401(k) from a former job, you may have money in dozens of funds. That’s not even factoring in an individual retirement account and a brokerage account.

Across these accounts, you may be duplicating where your money goes.

But do you really need to choose that many investments?

Their suggestion is to use three index funds that track US stocks, bonds, and international stocks. They also suggest a mix of taxable, tax free, and tax-deferred accounts.

Active versus Passive Investing

Over the years more and more investors have found that they are unable to successfully time the market. And, many find that their stock picks, bond purchases, and real estate investments are not beating the return on an index fund that tracks the S&P 500. Thus, many have moved to passive investing.

If you want to be an active investor and believe that your investment choices will outperform a set of passive investments, you need to spend the time necessary to track your investments and do research for picking new ones. If you simply do not have the time to do this, consider the simple steps to successful investing that we suggest.

Simple Steps to Successful Investing PPT

Is a Volatile Investment a Risky Investment?

There are times when the short term outlook of an investment or a whole class of investments, like a stock market sector, becomes uncertain. At that time the investment becomes volatile with its price fluctuating rapidly up and down. Many conservative investors choose to avoid such investments because they (the investments) seem risky. But, is a volatile investment a risky investment? Part of the answer depends on the time frame of you investing. If you try to time the market, jumping in and out, you may realize huge profits in a volatile market and you may simply lose all of your investment capital. By in large a volatile investment is a risky investment if you only focus on the very short term. But, what about the long term risks of a volatile investment?

Confusing Risk and Volatility

Reuters writes that we should never confuse risk and volatility.

Of the many lazy and dangerous ways of thinking about investment these two rank near the top: that risk equates with volatility and that risk and rewards are a straight trade off.

Both are overly simplistic and both lie at the heart of some of the most colossal errors in recent finance. And while both contain large amounts of truth at their core, both concepts represent shorthand versions of reality rather than tools which always, or even usually, work.

Over the long term of an investment, the only reason to fear volatility is if it threatens to result in permanent loss. We have written about long term investing and how five to ten years is an appropriate time to put money into a promising investment. One of the reasons for this time frame is that investments can be volatile and market timing is always less than perfect.

Investors who choose the most risk-free investments always give away the potential for greater profits. When we wrote about how to invest without losing any money, we wrote about these investment vehicles, in order of lesser to greater risk:

  • Bank deposits with Federal Deposit Insurance
  • US Treasury Bills, Notes, and Bonds
  • Investment Grade AAA and AA Bonds
  • Long term value investing based on intrinsic value assessment

Within any investment portfolio there should always be a place for these investments. Then, when a person needs money, they will not need to sell a stock, for example, when the market has just crashed. By in large, the closer one gets to retirement, the more conservative should be one’s portfolio. Nevertheless, there will always be a place for long term investment in stocks and others investment vehicles of which short term volatility is normal.

When Are You Willing to Accept the Risk?

Some of the most spectacular profits in real estate, bonds, or stocks come from buying in a depressed market and selling when prices return to normal. The problem is that many times there are extremely valid reasons why an investment has lost value. CNBC writes about bond investors buying risky high yield junk bonds. Many are betting that the mid-range volatility that has taken bond prices down will result in an upward swing in the reasonably near future and certainly before some of those bonds go into default.

This is a matter of market timing and is a valid reason to equate volatility with risk. Anyone who is an expert in buying and selling bonds is welcome to engage in the business of picking up junk bonds at the right time. But, anyone who does not have a clue about market timing in this sector needs to avoid investing in an area where they have not knowledge or expertise.

Is a Volatile Investment a Risky Investment? PPT

What Happens to Your Investments if the Trade War Becomes Permanent?

What is going to happen with US Chinese tariffs? The consensus of the stock market seems to be that an amicable agreement will be reached and all will be well. That may not be the case. What happens to your investments if the trade war becomes permanent? We are not the only ones to be concerned. CNBC reports that Moody’s believes the stock market is getting it wrong and that the trade war could be prolonged and cause lasting damage to the world economy. So far the USA has put tariffs on $200 Billion in Chinese goods and the Chinese have put tariffs on $60 Billion in US goods.

“It’s a very modest response,” said Edward Alden, a senior fellow at the Council on Foreign Relations, of China’s reaction. “There’s no question China’s hurting and they may want to negotiate. The problem is the Trump administration may be overplaying its hand. The harder they push, they may push the Chinese into a corner where politically and for just reasons of saving face, they can’t negotiate with the administration, and secondly the administration hasn’t established a negotiating process. There’s a real divide between the trade hawks and doves.”

Moody’s is predicting that US growth will slow to 2.3% next year and China’s to 6.4%. Why is this happening and why is there a danger of a prolonged trade war and diminution of the global economy?

The Rise and Predictable Slow Decline of US Economic Power

The USA became the dominant global power at the end of World War II. War had ravaged Europe and Asia. In the years after the war Japan and Germany rose from the ashes of defeat to become major manufacturing and global powers. India became a country instead of a British colony. Brazil started seriously developing its industry. The USSR rose and fell to be followed by the rise of the Russian Federation as a dominant producer of raw materials, especially oil and natural gas. As Europe, Asia, and other parts of the world gained economic ground they cut into the dominance of American industry and even science. This would have been easy to predict given that another global war did not occur. Nevertheless, many in the USA long for the “good old days” of American dominance. Those days occurred because WWII destroyed so much of the global economy and left the US economy intact. Nevertheless, many Americans are really angry and thus elected Donald Trump. Trump is under pressure to “get a better deal” for his constituents and is not known for backing off. And, even when Trump is no longer in office, US leaders will need to address the trade imbalance with China in order to preserve a strong US economy, manufacturing base, and defense.

The Rise of China

China was the “middle kingdom” in Eastern Asia for centuries. Then the European Colonial powers ringed them in. When the Communists defeated the Nationalists in the late 1940’s they became an enemy of the USA. And, the USA developed alliances that ringed in both the USSR and China. China was an isolated nation with a huge army and nuclear missiles.

In the 1970’s US President Nixon decided that bringing China into the community of nations was a better idea than leaving them as a dangerous outsider. The Nixon visit to China led to opening up of the world to Chinese manufacturing and a huge amount of investment in China. The result has been that China is the largest exporter in the world and has a trillion dollar foreign currency reserve. AND, the Chinese have a trade surplus with the USA in the hundreds of billions of dollars each and every year.

China does not want to go back to its period of isolation and has global ambitions as seen in its Silk Road project to create rail and sea links to markets across Eurasia. China needs to sell it products to the world in order to further its global ambitions. There will be a level of tariffs and loss of markets that China will not be able to agree to in their leadership wants to maintain control of the country. Meanwhile wealth Chinese are causing a flight of capital from the new Middle Kingdom.

Automation and Outsourcing

Throughout the world manufacturers are using more and more automation. Robots may cost more than people but they don’t get sick, don’t need pensions, and can be “retrained” with a few lines of computer code. The result has been fewer jobs in many industries. Then, companies in developed economies like Europe, North America, and even Japan outsourced their “easier” work to countries like China to get the work done for less. And, by outsourcing they bypassed labor issues and did not need to buy health insurance or pay pensions for those foreign workers. The net results was fewer jobs in the American Industrial Heartland and in similar areas in Japan and Europe.

Fewer Jobs, Lower Pay, and Angry People

You do not need to be a university-trained economist to drive through Gary, Indiana and notice that all the steel mills are gone. This picture has been duplicated across American and Europe as well. There certainly are good jobs in new industries but many of the good new jobs require a college or university education. And then there are all of those foreigners who can write computer code as well as a home-grown American. And they are willing to work for less! People are making less money and for the first time in American history do not believe that the country is getting better or that their lives will get better.

So, What Happens to Your Investments if the Trade War Becomes Permanent?

Both the USA and China see the trade war as “zero sum” game. A zero sum game is a situation in which the losses by one side are the gains of another and vice versa. China sees is place in the world as the dominant global economic and political power, which are positions now held by the USA. The USA sees itself as maintaining its place in the world and is justifiably fearful of a world controlled by China.

There may be a point at which neither side will back off of its demands. When that happens, trade between the USA and China will diminish. There is a chance that trade between China and Europe could also suffer is Europe adopts the view of the USA. This would result in different global trade patterns and diminished global trade.

How are your investments going to do if Caterpillar, Boeing, 3M, Microsoft, Apple, Harley Davidson, and other US companies lose foreign sales?

Can the USA bring industry back to the Industrial Heartland? What will happen to the USA dollar if the global economy shrinks? Right now, investors are pulling money out of developing economy and into dollars. Forex traders are waiting for that trend to reverse. Domestic businesses like utilities, railroads, and others whose businesses are limited to the USA may be a hedge against a permanent trade war.

What Happens to Your Investments if the Trade War Becomes Permanent? PPT

Who Wins if Coca Cola Adds Cannabis to Soft Drinks

As more and more states legalize medical and even recreational marijuana, Coca Cola is talking to Aurora Cannabis about putting non-psychoactive cannabis in beverages. Who wins if Coca Cola adds cannabis to soft drinks? We recently posed the question, are marijuana companies good investments.

Tilray is the second largest publicly traded marijuana company. Their sales have doubled in the last year and the stock recently went up 17%. With more and more states legalizing marijuana for medical or even recreational purposes, are marijuana companies good investments?

Our opinion as expressed at the end of the article:

In the end, the marijuana companies that will be good investments will be those which manage their cost of production, compete well on quality and price, and market most effectively. Right now, it is not clear who that will be!

Well, the business of effective marketing may be taken care of for Aurora Cannabis if they team up with the largest soft drink maker, Coca Cola. According to CNBC, the marijuana infused drinks will contain non-psychoactive cannabis and not the stuff that creates a “high.”

The companies would likely develop health-focused beverages that will ease inflammation, pain, and cramping, the report said.

The health market is full of drinks, pills, and foods offering health benefits. According to Allied Market Research, the natural food and drinks market had a value of $79 billion in 2016 and is expected to hit $191 billion by 2023. This is three-fold growth in just 7 years.

Non-psychoactive Cannabis

There is always lots of hype about the benefits of health foods and drinks, most of which is not supported by hard facts. However, in the case of cannabis products, real scientists are doing real research and reporting the results. And, it turns out that the constituent cannabidiol (CBD) can be used to successfully treat a real inflammatory process, acute contact dermatitis (think poison ivy!).

When cannabis (the marijuana plant) is processed for its various constituents, there are lots of different chemicals. Several of them appear to provide health benefits without producing the “high” for which marijuana is known. Researchers are now tracking down specific uses for these. The Journal of Pharmacological Therapeutics (2018; Jun; 365(3):652-663) reports that one cannabis compound, cannabidiol (CBD), effectively treated acute contact dermatitis.

This was the first demonstration of the anti-inflammatory properties of CBD in an experimental model of ACD.

Don’t for a second believe that if Coca Cola teams up with Aurora Cannabis that the advertising machine at Coke will not make the anti-inflammatory benefits of a cannabis-infused “health drink” perfectly clear.

Cannabis: More than the “High” and Relaxation

There is another set of neurological and psychological health benefits from cannabis-derived compounds. And these, are not related to the parts of marijuana that create the “high.”

Surgical Neurology International (2018; 9: 91.) reports on the wide range of conditions for which the compounds phytocannabinoids, cannabidiol (CBD), and delta-9-tetrahydrocannabinol (Δ9-THC) are being studied and actively used in treatment.

Recent neurological uses include adjunctive treatment for malignant brain tumors, Parkinson’s disease, Alzheimer’s disease, multiple sclerosis, neuropathic pain, and the childhood seizure disorders Lennox-Gastaut and Dravet syndromes. In addition, psychiatric and mood disorders, such as schizophrenia, anxiety, depression, addiction, postconcussion syndrome, and posttraumatic stress disorders are being studied using phytocannabinoids.

This is a lot of science and most laypersons do not need to know the specifics. What is important for investors is to know that the science behind this is real and not just health product industry hype. With the “real science” in mind, who wins if Coca Cola adds cannabis to soft drinks? Aurora ought to win by teaming up with the Coca Cola Empire. And, a lot of folks who derive real health benefits from their products may do pretty well too.

Will There Be a Recreational Coca Cola-Cannabis?

We mentioned at the start that more and more states are not only legalizing medical marijuana but recreational marijuana as well. In that case, there is nothing to keep Coca Cola and Aurora Cannabis from partnering on a Coca Cola soft drink that creates a bit of a “high” and provides health benefits!

Who Wins if Coca Cola Adds Cannabis to Soft Drinks PPT


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