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About Profitable Investing Tips

Profitable Investing Tips has been a member since April 20th 2008, and has created 155 posts from scratch.

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What Happened to Trump’s Economic Agenda?

The Trump bump stock market rally is fizzling out. The market is asking what happened to Trump’s economic agenda as the new prez and House Speak Ryan promote their version of an Obama Care replacement. CNBC says that there will be a Trump tantrum looms on Wall Street if Trump’s first legislative push fails.

The Trump Trade could start looking more like a Trump Tantrum if the new U.S. administration’s health-care bill stalls in Congress, prompting worries on Wall Street about tax cuts and other measures aimed at promoting economic growth.

Investors are dialing back hopes that U.S. President Donald Trump will swiftly enact his agenda, with a Thursday vote on a health-care bill a litmus test which could give stock investors another reason to sell.

“If the vote doesn’t pass, or is postponed, it will cast a lot of doubt on the Trump trades,” said the influential bond investor Jeffrey Gundlach, chief executive at DoubleLine Capital.

While health care stocks will be affected by how the health care bill turns out investors are more interested in the lack of progress on economic issues. After all the reason for the Trump post-election rally is the promise of tax cuts, repatriated offshore corporate cash and money poured into infrastructure repair. And if Trump and the Republicans who control congress cannot deliver on their first promise to repeal and replace the Affordable Care Act how will they do on the economic issues?

Is the Market Overpriced?

The concern about Trump’s economic agenda is that investors are pricing stocks based on perfect performance of the new prez and his Republicans. If these guys don’t deliver how painful will it be? That depends on how overpriced the market is. Forbes asks is the market expensive? They offer two sides of the argument.

“Frothy.” “Pricey.” “Stretched.” These are among the adjectives used to describe the stock market-and they’re not even the most ominous.

Nobel Laureate Robert Shiller recently told Bloomberg he believes the market is “way overpriced” and that the current elevated CAPE ratio of 29 is a “bad sign.” John Hussman, president of the mutual fund Hussan Investment Trust and a Ph.D. in economics from Stanford University, argues that the market may be due for a hefty correction. In Fortune this month, he was quoted as saying that the current market environment is in “the most broadly overvalued moment in market history” and that investors shouldn’t expect much in the way of equity returns.

Interestingly Warren Buffett disagrees.

Warren Buffett not only believes that the U.S. stock market is a good bet, he declared in a recent CNBC interview, “If there’s a game it’s very good to be in for the rest of your life, the idea to stay out of it because you think you know when to enter it-is a terrible mistake.” Buffett is steadfastly confident in our country’s economy and its ability to overcome adversity.

How is it that Buffett who famously says to buy when everyone else is leaving the market and sell when everyone else is buying is jumping into stocks so heavily right now? It has to do with the time frame. Buffett gets into stocks for the very long haul. Recently we asked how long does it take to make an investment long term. Ten years and longer is the answer. So Buffett trusts American business and the stock market and says that staying out is mistake. Nevertheless he is a firm believer in intrinsic stock value. What will happen if the market corrects on the basis of Trump’s failure to deliver on his economic agenda? Buffett will probably buy more stocks.

What Happened to Trump’s Economic Agenda? PPT

Are Latin American Investments Going to Soar?

Despite continuing economic concerns in Latin America their stocks markets are doing well. Partly this is because of the commodity slump the reduced values in all nations that export raw materials. And, of course, there was the impeachment of Brazil’s president and Venezuela’s Chavez/Maduro meltdown. Nevertheless markets are doing well down south. CNBC offers three reasons why Latin American stocks will continue to soar.

If you just pay attention to the headlines, it looks as if Latin America has taken a turn for the worse. Data revealed last week showed that Brazil GDP contracted by 3.6 percent in 2016, prolonging its worst-ever recession, Mexico’s peso has been sunk by talks of U.S.-built walls and renegotiated trade deals, and Venezuela is nearing a total collapse.

However, stock markets tell a different story. In 2016 several Latin American markets began soaring, reversing years of negative returns. The MSCI Emerging Markets Latin America was up 21 percent, the MSCI Brazil climbed by 61 percent – it was the best-performing emerging market country last year – MSCI Peru rose by 53 percent, and others experienced gains as well.

Why is this happening? Here are the three reasons cited by CNBC.

New governments that are better run and pro-business

The impeachment of Dilma Rousseff was not an isolated event. Neither were the investigations into murder and corruption in Argentina. Many South American countries labored for years under corrupt and badly managed regimes and their removal has shown the light of day on corresponding economies.

Recovery of South American currencies

This is a result of foreign direct investment in these countries. More dollars are used to purchase the currencies of Brazil or Argentina and this drives up the value of those currencies.

Good and cheap deals remain

The markets in Latin America are still underpriced if you apply fundamental analysis and assess intrinsic stock value.

Currently, the S&P 500 is trading at 25 times earnings, while Latin America is trading at 14.3 times earnings, according to data from Credit Suisse. While that’s higher than it has been in the past, there are still plenty of good deals in the region, says Zamorano.

On a country-by-country basis, Peru and Colombia look cheap, trading at 12.3 and 11.9 times 2017 earnings, respectively. Brazil is slightly more expensive, trading at around 13.2 times earnings, but with an expectation of a turnaround – the country’s central bank is predicting 2.8 percent growth in 2018 – multiples will likely expand from here, says BlackRock’s Landers.

If you are not a fluent Spanish or Portuguese speaker you can still invest in Latin American stock by way of American Depositary Receipts. You can find lists of Latin American ADRs by country at Emerging Market Skeptic.

Caribbean ADRs

Bahamas ADRs
Bermuda ADRs
Cayman Islands ADRs
Puerto Rico Stocks

Central America ADRs

Mexico ADRs
Panama ADRs

South America ADRs

Argentina ADRs
Bolivia ADRs
Brazil ADRs
Chile ADRs
Colombia ADRs
Ecuador ADRs
Peru ADRs
Venezuela ADRs

Are Latin American Investments Going to Soar? PPT

How to Profit from Higher Interest Rates

The Federal Reserve is expected to raise interest rates again. The New York Times writes that the question is not why raise rates but why not.

The unemployment rate, one of the gauges the Fed watches most closely, fell to 4.7 percent in February, a healthy level by historical standards. Inflation, the other gauge, finally appears to be reviving. Prices rose 1.9 percent over the 12 months ending in January, close to the Fed’s 2 percent annual target.

The Fed continues to hold its benchmark interest rate at a level intended to stimulate economic growth by encouraging borrowing and taking risks. It sits in a range from 0.5 percent to 0.75 percent.

Everyone wants to expand the economy. The Trump market rally is based on the expectation of lower taxes, fewer regulations, repatriation of offshore corporate cash and infrastructure spending.  But is that what it takes to make the economy hum?

The government estimates that the economy grew just 1.6 percent in 2016, compared with 2.6 percent in 2015. Moreover, private economic forecasters don’t see signs of an acceleration in the first quarter of 2017.

But the most important factor is the slow pace of productivity growth.

There are only two ways to expand an economy: add workers, or get more out of every worker. The domestic work force is growing slowly, and lately, so is productivity. Low interest rates can’t fix either problem.

Thus the Fed will likely deal with inflation by raising rates at a measured pace and leave economic stimulus to the administration and congress. And how do you profit from higher interest rates?

How to Profit As Interest Rates Go Up

The Motley Fool has a few suggestion of how to profit from rising interest rates.

Create a Bond Ladder
This is not a good time to lock money into long-term fixed-income instruments such as Treasury bonds. Build a portfolio of short-term notes that will periodically come due, perhaps a month after each meeting of the Federal Reserve.

Buy Treasury Inflation Protected Securities
These special bonds are backed by the full faith and credit of the U.S. government. They pay a fixed rate of interest twice each year, and the principal in them is also adjusted for on a semiannual basis. The government makes this adjustment based upon changes in the Consumer Price Index (CPI), which is widely considered the best indicator of inflation.

Invest in Banks and Financial Service Companies
The financial industry always profits when interest rates start to rise, as this means they can charge higher interest rates on loans and other financial products.

Take Capital Losses from Bonds and Bond Funds
Bond prices will start to fall in the secondary market when interest rates start to rise. This may offer a good opportunity to realize some capital losses in your fixed-income portfolio. These losses can be netted against any taxable capital gains that you realize during the year and also against other forms of income within certain limits, which will lower your overall tax bill.

To the extent that you expect rates to go up rapidly you will want to sit on cash or cash equivalents as longer term investments like solid dividend stocks come down in price to where they are a good deal.

How to Profit from Higher Interest Rates PPT

Beware of Toxic Investments

Kodak was a great stock until digital photography came along. A great stock became a toxic stock. Beware of toxic investments and get out of stocks that are bucking the trends. The Motley Fool offers three stocks that could prove toxic to your portfolio.

Some industries just can’t compete with changing trends. Take retailers and offshore drillers, for example, which are struggling to contend with the lower-cost technological innovations of e-commerce and shale drilling, respectively. Because of that, companies in these industries are seeing their sales and profits sink, which is taking their stocks down as well. We don’t see either trend going away anytime soon, which is why stocks in these sectors could prove toxic to your net worth. Three stocks that we think could be particularly harmful are Stage Stores (NYSE:SSI), Target (NYSE:TGT), and Seadrill (NYSE:SDRL).

The Target security breach was a painful fiasco for the stock but Target recovered back in 2013. What has dragged down Target sales is a losing battle with the internet. Stage Stores are in worse shape. The current saving grace for Target is a healthy dividend but until the economy really starts humming and people buy in the store instead of online bricks and mortar retailers are toxic even at cheap prices.

When it became hard to find oil on land they started drilling offshore. This is more expensive but can be lucrative at the right oil price. Unfortunately the collapse of oil prices has hurt offshore oil and reduced the demand for oil exploration and drilling of new wells. More importantly oil fracking technology has gotten more efficient and more economical. If you are looking for new oil it is more profitable to look in shale formations than a mile beneath the surface of the Gulf of Mexico. Offshore oil drillers will be toxic investments for the foreseeable future.

Signs of a Dangerous Stock

How can you spot dangerous and toxic stocks? Mad Money has a simple suggestion for how to know that a stock is too dangerous.

Jim Cramer reminded investors that when they see a stock with an absurdly high yield, they need to stay the heck away from it.

“I don’t care how tempting the dividend looks or how cheap the stock seems. A super-high yield that is totally out of whack with its peers is almost always a sign that something is very, very wrong and you need to run, not walk away as fast as you can,” the “Mad Money” host said.

A classic case of this is with Frontier Communications, a small telecommunications provider with a monstrous 14.6 percent dividend yield that closed at $2.76 per share on Monday.
The stock might seem tempting, but buying a stock for that big of a yield is almost always a mistake.

The important part is the recent history of the stock. It was an $8 stock that lost two thirds of its value over the previous year. Look to see the dividend cut soon and the stock to fall even further. Beware of toxic investments.

Beware of Toxic Investments PPT

Does Low Volatility Predict a Positive Market?

According to CNBC you have to go back to 1994 to find a similar situation in the stock market. The S&P has gone a hundred days without a 1% dip. Besides being something they haven’t done for more than 20 years this low volatility may well predict a positive market going forward.

Since 1950, the market has logged only 21 other instances when the index traded without a 1 percent down day for 70 or more consecutive trading days, Johnson wrote in a recent report. The longest streak was in 1963, when the S&P 500 saw 184 straight trading sessions without a decline of 1 percent or more.

Interestingly enough, the S&P 500 in these 21 relatively quiet periods has generated average returns of 13.9 percent over the next year, with 85 percent positivity rate.

Long term technical analysis of this sort indicates a better market going forward than the apparent chaos in Washington might imply. In our article about why airlines are a better investment than they used to be we looked at why airline profit has little to do with Washington.

None other than Warren Buffett, who called airlines a death trap for investors, has poured $10 billion into the four major airlines in the last couple of years. Why are airlines better investments than they used to be?

Fewer airlines, lower fuel costs and more efficient operation are helping airlines make money and be better investments. None of these factors has anything to do with Trump’s tweets, congress repealing Obamacare or Russians hacking the US political process. On the other hand a trade war could be devastating for airlines and it would appear that the market does not see one coming. What do you do now if the market will be up next year?

Is It Time to Buy?

Folks who were badly hurt by the 2008 crash have been hesitant to reenter the market and have missed out on the rally so far. The Washington Post has a suggestion if you’re missing out on the stock market rally.

Investors have not been this bullish about the stock market in 30 years, according to a recent survey of market professionals done by Investors Intelligence, an investment research firm.

But this kind of euphoria can also make some investors nervous about what will come next. Are the recent highs a sign that the market is nearing a peak and ready for a tumble? (The last time investors were this optimistic was 1987, the year of the infamous “Black Monday” market crash.) Or is this simply the market breaking new ground as part of a long-term rally?

The jury is still out.

But in the meantime, investors looking to buy more stocks can take the guesswork out of the equation by spreading out their purchases over time, financial advisers say. “The biggest mistake I see investors make is they have an all-or-none mind-set,” says JJ Kinahan, chief market strategist for TD Ameritrade.

Low volatility may well be predicting a positive market going forward. And getting in bit by bit may well be a good idea. This market may well end up like the rest with a crash but if you stay in over the years you will tend to make money as the American economy grows.

Does Low Volatility Predict a Positive Market? PPT


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