Why Is the Dollar Falling?

The dollar is a safe haven currency for people all over the world. When times are difficult, investment tends to flow into the USA and strengthen the dollar. Now that vaccines are expected to help stop the pandemic global optimism is on the rise and this strengthens investment options other than the USA.
In addition, the US Federal Reserve has promised to go “all in” on keeping interest rates low, buying bonds, and printing money to keep credit flowing and the economy from going into free fall. The prospect of interest rates being low for the long term weakens the dollar. And, the Biden administration will most-likely push for more financial support across the board and for low interest rates into the long term future. Investors looking for high returns will end up looking to Europe or Asia for investment opportunities.

Will the Weakening of the Dollar Continue?

A hallmark of the Trump administration has been the trade war with China and high tariffs. This has tended to strengthen the dollar. Because Biden is more likely to rely on other means of dealing with China, consumers will be paying less for imported products, global growth will be positive and the dollar will continue to fall.

As we have frequently noted, a weak dollar is not a bad thing for American industry and tends to support exports. Thus the dollar will fall until it hits a level where it helps American industry and then it will stabilize. Meanwhile the price of oil will be cheaper in foreign currencies as will other commodities that are routinely denominated in dollars.

Because not all nations prefer a surge in their currency versus the dollar we can expect central banks to take action, which will modify the picture.

Because the pandemic is the root cause for effects on the global economy and currencies, we can expect all of this to continue for months as the disease worsens in the winter months, vaccines take months to be administered in sufficient quantity and people are convinced to abide by common sense precautions to drive down the incidence of Covid-19.

How Should You Invest with a Weakening Dollar?

The US economy is going to worsen before getting better. The longer Congress waits before passing more broad-based stimulus measures the worse it will be. To avoid having your investments hurt by a weakening dollar look offshore. You can purchase ETFs that track offshore stocks or bonds. You can increase your investments in US multinationals that have huge offshore footprints. And, you can move savings into foreign currencies or purchase commodities that will benefit from a falling dollar. For most folks, US multinationals or ETFs in the USA that track foreign stocks are easier to invest in and get out of and don’t require you to learn Forex or commodity trading!

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When Should You Sell an Investment?

The first question really is why did you invest in the first place? Yes, we invest to have more money. But, is there a specific reason besides simply wanting to have more? Please forgive us for stating the obvious, but here are ten reasons why we invest.

• Increase your wealth
• Saving for retirement
• Reach a financial goal
• Take advantage of employer matching 401(k) program
• Increase returns from pre-tax dollars
• Increase the rate of return on your money
• Start your own business
• Take care of family or contribute to a charity
• Reduce your taxable income
• Invest in and be part of a new business venture

The point is that when you should sell an investment will depend in part on why, and how, you invested in the first place. Here are a few examples.

No Longer a Good Investment

We have written about Kodak several times. George Eastman and his company invented camera film and the personal camera. They were the leader in the industry for a hundred years. Then digital cameras were invented and Kodak’s business plan no longer worked. When should you sell an investment when its business plan is obsolete? The answer is, sell it now. Do not try to time the market. Get out because the direction of the investment will be downhill until the end.

There are situations in investing that are obvious, like Kodak and, perhaps today, Sears as well. Sears was a pillar of the retail world for about as long as Kodak dominated the world of cameras. And, although online shopping has greatly hurt department stores, there are still retailers making a profit. But, Sears is not one of them. When should you sell an investment that is not keeping up with its peers? Again, the answer is, sell it now.

Learning to assess intrinsic stock value is essential for a long term investor. If your goal in investing is to increase wealth over the long term, you need investments that will reliably generate income over the years. These investments have intrinsic value in excess of their current price. When that is not the case and is not likely to be the case, over the long term, it is time to sell.

Market Too Volatile for Your Investment Time Frame

If you are investing with the goal of sending children to college or for the business you have always dreamed of, you may not have the luxury of waiting for each of your investments to ride out a recession and a down market. And, like most normal investors, you may not be all that successful at timing the market.

If the market starts getting volatile, like it did the last few months, when should you sell an investment? The answer is that you should sell at least part of your investment as soon as possible on the next up day in the market.

In fact, if you are nearing retirement, getting close to when you will need money for college, or close to what you need to start your new business, it will be wise to re-balance your portfolio to reduce risk from your most volatile investments. Part of such a portfolio should contain cash or its equivalents. We have written about how to invest without losing any money. In that article we note that the safest investments include US Treasuries but only if they are held to maturity. When the markets, interest rates, and other factors become volatile, use a ladder of short term bonds or treasuries to provide safe investments and ones that will not be swept up in the market volatility.

A Multipurpose Investment Portfolio

Even if you are putting away money to send the kids to college, you are, or should be, saving for retirement as well. Thus, when you should sell an investment will depend on the purpose for which you are investing each portion of your portfolio.

Additionally, money in your 401(k) at work or your IRA(s) should remain there until retirement or at least as long as you will not be penalized for early withdrawal.

The mix of investments in a portfolio is typically more growth stocks early in the game and more value stocks and bonds later on. This mix can be modified for each portfolio segment so that when it comes time to sell investments and get ready to use one portion of the portfolio, the other portions remain untouched.

When Should You Sell an Investment before You Expected to?

US News published an article about when it’s time to sell a stock.

Other than cash flow needs, “The only reason you would sell would be when the future expectations are below your target.”

Thus, you are routinely doing fundamental analysis on your portfolio and the fundamentals have changed on one or more of your investments. This should be a routine chore over the long term. Or, the time has come to cash out an investment to start paying college tuition. When should you sell an investment outside of this time frame? It is when you cannot make an intelligent assessment because of market volatility. It may be the trade war, interest rates, or social and economic unrest offshore where you have foreign direct investments. It does not matter why it happens but when you cannot make an informed decision it is time to get out. This advice follows that of Warren Buffett who says he throws out 95% of his potential investments as too hard to call. Buffett, in fact, held a strong cash position going into the dot com crash because he said the market made no sense!

When Should You Sell an Investment? PPT

What Happened to Brazil?

China is what happened to Brazil and the recession is what happened to Brazil. Much of Brazilian economic growth came from exports or raw materials, largely to China. When the recession hit and reduced finished goods orders from North America and Europe China reduced orders for raw materials from across the world. As the Chinese look inward and concern themselves with growth and social stability, Brazil has fewer raw material orders to fill and its economy is in a slump. Even in this scenario Eike Batista is an outlier. The man is a consummate deal maker and promoter. He built upon early success and convinced big investors that his success was exponential. He has his hand in port facilities, mining interests, oil (the current bankruptcy filing), shipyards, and an entertainment company. All of these interests have been cut back and have lost share price. Although Batista has lost $30 Billion as stocks have fallen, his shareholders have lost as much or more. American investors are angry and want blood. So Batista has sought bankruptcy protection. He will likely get sixty days to come up with a reorganization and payment plan. His creditors will have a month to accept or reject. Someone in this Brazilian bankruptcy is going to lose a lot of money. Investing promised phenomenal growth has turned into a matter of investing in risky stocks. Considering that economies do come back it may be best to wait until Mr. Batista’s companies bottom out and then look to invest as in the Blood in the Streets scenario of Mr. Rothschild so long ago.

Investing Tips Regarding the Brazilian Bankruptcy

Timing can be everything in situations such as the Brazilian bankruptcy of OGX Petroleo e Gas Participacoes. The stock trades as an ADR for around six cents a share and was $2.35 a share a year ago. Before the 2008 market crash the stock sold for over $200 a share. That fact may make those who invest in penny stocks perk up and consider a low cost long term investment.

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Scarcity, Drama and Oil Price

The price of oil and natural gas are slightly higher than what the market might otherwise determine because of the embargo on oil and gas from Iran. And it is up because of the continuing threat of hostilities in the Persian Gulf due to the Iran weapons program and sanction from the West. The world is still recovering from the worst recession in three quarters of a century so demand is down. As economies recover demand will rise. In the meantime increasing Iranian natural gas production could drive prices down and make it unprofitable to bring gas from higher priced sources to market.

Here are 2011 production figures for the top ten producers.

As the table shows Russia and the USA are far and away the biggest producers. However, the prices of oil and gas are commonly determined on the spot market as much of what is bought and sold in under contract for months or years prior to recovery and sale. As such bringing another ten, twenty, or thirty billion square meters of gas to the market could substantially drive prices down. In short do your fundamental analysis before buying or selling oil and gas stocks. And watch the news to see if the Iranian nuclear problem gets resolved.

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Who Will Run the Post Bernanke Federal Reserve?

The current front runner for the position is Janet Yellen who is the vice-chair of the US Fed board of governors. She was also a key player in the development of the quantitative easing program. Yellen moved to the front when previous front runner Larry Summers bowed out in response to expected opposition from Democratic senators. Others with include Donald Kohn who worked at the Fed for forty years and as a governor for the last eleven and vice chairman for four and Alan Blinder who is also a former Fed vice chairman. These folks are all insiders and could well be expected to continue current policies for which they have consistently voted. A dark horse prospect is Stanley Fischer should the President decide to pick someone from outside of the Fed. Born in Zambia, Fischer was a governor of the Bank of Israel and is a highly respected economist. As the anticipated end of bond purchases drives stocks down investors are concerned that a radical change in direction could greatly upset markets and the economic recovery. As such many expect the President to pick the front runner, Yellen. However, there is no reason that the President could not ask Mr. Bernanke to stay on! A decision to delay a post Bernanke Federal Reserve might surprise many but be a comfort to the markets.

Profitable Investing in the Era of the Post Bernanke Federal Reserve

Sound stock investing principles do not change no matter who runs the Fed or who is in the White House. Wise investors look at the intrinsic value of a stock and its margin of safety. A company with fundamentals that predict continued growth is a good long term pick. A company that has a good margin of safety in the form of property, inventory, and low debt will remain strong throughout an economic downturn. In the post Bernanke Federal Reserve era general economic principles will still apply and those who watch closely and do their homework will succeed.

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Business risk is the risk of competition. Effectiveness of management, developing and promoting products, penetrating markets, and doing so in the most cost effective and profitable manner all go into a profitable company. Business risk is also economic risk. Macroeconomic circumstances such as recessions and wars can devastate otherwise thriving businesses. New scientific discoveries or new technologies can likewise create new winners and losers. Diversification helps in managing investment risk. Consumer product companies typically do better during a recession than oil companies. Owning different types of stock in several market sectors will protect you from an isolated market downturn in one sector.

Fundamental analysis of stocks includes a careful look at price to earnings ratios and cash flow ratios. These details will tell you if a stock is overpriced or underpriced. They will tell you how effectively the company is using its cash flow. Fundamental analysis of a stock will tell you if it is a good buy or if its success has caused it to become overpriced. May companies have their day of rapid expansion and eventually grow to a size that inhibits spectacular growth. They are typically priced in anticipation of future earnings. Managing investment risk in buying stocks has to do with not overpaying for popular stocks on the one hand and finding underpriced stocks on the other.

Managing investment risk probably best starts with having a clear idea of what your investment goals are and developing an investment plan consistent with your goals. There are many stocks that have appreciated in value over many years. Long term investing is best served by finding underpriced stocks with good prospects, buying and holding. However, almost all stocks suffer when there is a market crash. If your goal is to make a certain amount of money in a few years you may be disappointed when the economy turns sour just when you want to sell and take profits. Managing investment risk for short term goals is easier with trading options where there is profit in both the rise and fall of stock prices. Knowing what penny stocks to watch for short term gains may be a better idea in a volatile market where you want to keep your gains as cash.

Managing investment risk works best when you don’t let everyone else’s mood affect yours. Polls tell us that the American public is very pessimistic about the economy despite the fact that the economy is improving, retails sales are coming back, and manufacturing is picking up. Whether you are investing in oil, investing in gold, or investing in beer companies keep your eye on financials and fundamentals as your guide to managing investment risk.

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It is not as though other nations are without sin in this matter of casting stones at debt. The United States’ total debt is calculated at nearly 95% of gross domestic product. The entire Group of 7 has debt to GDP percentages above 79%. China’s debt to GDP percentage is 22% according to Chinese government figures. The problem many see in China is its practice of taking government debt off the books. When the Asian currency crisis hit in the late 1990’s Indonesia, Korea, and Thailand were in trouble. China avoided the worst but still found that its banks had written a huge number of loans that became uncollectable when foreign investment faltered with the currency crisis. What China did was to create “management companies” for its four major banks. These companies took over the debt from non performing loans and issued bonds for these “assets.” The bonds were for ten years and the problem was swept under the rug. Picking new winners in China as the recession lifts will require a clear assessment of how much debt a company has and how strong its balance sheet is.

It is interesting that when ten years passed after the Asian currency crisis the four management companies all had different stories about residual debt but all of them went looking for “strategic partners.” Beware of investing in China with companies heading to the rescue of these debt management arms of Chinese banks. The passage of time will add other issues for investing in China. The country has had and enforced a one couple one child rule for decades. This policy has slowed growth in the world’s most populous nation to where India recently passed China as the nation with the most people. Fewer children has had the effect of aging China’s population. The traditional means of supporting the old in China is gone with its large families. Although the Chinese are big savers the government has no retirement programs and no health insurance programs for the elderly. Old age costs will come out of savings. The high savings rate in China will not come to the government’s rescue in a time of high national debt. It will go to caring for the elderly. Those interested in stock investing in China will need to look carefully at tax rates and social needs as they affect business growth in the nation. The Chinese government does not admit to any debt off the books but it is going to abandon loan guarantees for investment companies having local governments issue bonds instead, thus shifting debt responsibility to investors and away from government. Give thought to hidden debt when investing in China.

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The Size and Shape of the Business Opportunity

Cell Tower Gold tells us that there are approximately 370,000 cell phone tower site leases appropriate for investment in the USA. Because of the prohibitive cost of buying land, cell phone companies only purchase a few percent of the sites that they need. Over ninety percent of cell phone tower sites are privately owned and leased to cell phone companies. Although many owners of cell phone tower site leases are perfectly happy with their situation, there are many who could be convinced to sell at a reasonable price. Find cell tower sites and talk to the owners. You will find out who might be interested in selling and why. Owners of distressed properties may want a cash infusion. Someone nearing retirement may simply want to get rid of his property lock stock and barrel. Find out who wants out and you will have the beginnings of a business dealing with cell phone tower site leases. If you want to make money on cell phone tower investing consider taking the short course offered by Cell Tower Gold. Like all business opportunities, picking good cell phone tower site leases requires a knowledge base, time, and effort, as well as a bit of creative thinking. Learn about this business opportunity and start on your way to handsome profits.

Where Do I Start?

Find cell sites and owners of cell phone tower site leases by driving around. Cell tower sites are on building tops, free standing towers, and hilltops. You can go online to sites like www.AntennaSearch.com for more info. Find a number of sites and then approach the owners. You will probably find a person or two who is interested in selling. At this time you will need to find a solution that works for all parties concerned. One profitable route is to find buyers for these sites first. Then, with money in your pocket or a line of credit, you can make profitable deals for cell phone tower site leases.

For more information about this amazing opportunity, please visit
http://www.celltowergold.com.

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In posing the question how high can stocks go, we should consider fundamental analysis of individual stocks, the markets in general, the US and world economies, and the prospects of other, non-stock, investments in the near term future. And, one should always consider the lemming effect, the herd following market leaders, even when all of them are heading for the proverbial cliff.

Does Government Policy Set Market Prices?

Wall Street hit a record high and markets across the globe followed. Japan‘s Nikkei 225 index is up to nearly a five year high. In both cases much of the enthusiasm has to do with Federal Reserve/Central Bank policies. Somewhere around $7 Trillion in equity was erased when the markets tanked in 2008. Governments bailed out banks to keep credit markets afloat and engaged in gigantic stimulus programs to get their economies going again. Much of the enthusiasm in the markets comes from an optimistic view of how much longer the Fed and other institutions will continue to promote growth with their policies. How high can stocks go? That depends on the Fed and other central banks and on the perception of the market.

How about Individual Stocks?

Picking new winners in the stock market typically has little to do with the general state of the economy or monetary policy. The success of a new company has to do with its products and its sales. Intrinsic stock value is the expected future earnings of a company discounted to current cash. When a stock is underpriced as compared to its future earnings potential it is a good buy and when it is overpriced in this regard it is time to sell. How high can stocks go in this regard? Microsoft grew about two thousand fold before it corrected and leveled off a few years ago. No matter what the economy is doing there is a bio tech company out there that will come up with a cure for diabetes, Alzheimer’s, or heart disease. How high can stocks go when the company has a unique product? The sky is the limit.

Is the Market on Track or Is the Market Crazy?

If you believe that the world economy will get back on track, that North America and Europe will regain full financial health, that these two giant economies will continue to lead in innovation, you want to own stocks in these economies. If not you will want to look elsewhere. If you believe that the BRICS nations will grow and prosper you will want stocks in Brazil, Russia, India, China, and South Africa. If you think there are problems, such as potential BRICS development bank problems that we mentioned recently, you will want to be careful there as well. As we consider how high can stocks go we should also consider what will happen if there is another major shock to the markets such as an expansion of the war in Syria or even conflict with Iran over its nuclear ambitions.

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Diversify Your Investment Portfolio to Gain Variety and Opportunity

When you diversify your investment portfolio you invest in a variety of assets. Because the value of each investment does not go up or down in perfect harmony, diversification averages out risk, as well as gain. To the extent that one is looking to a big gainer, having more stocks, real estate, or other assets may serve to increase the odds of success. In their book A Random Walk Down Wall Street the authors note that the best return in stocks is often a basket of about forty small cap stocks. These stocks are priced low because of the risk inherent in small companies. However, if you diversify your investment portfolio with a large number of these stocks, you increase the chances of finding a huge winner which will negate the effects on the portfolio of a handful of losers.

There Is Always a Bull Market Somewhere

Not all investment vehicles go up and once or down at once. As an example, when the price of oil goes up, the price of oil company stocks generally rises. At the same time the prices of industrial stocks, hit by the higher price of energy, typically go down. By investing in stocks in several sectors you can often average out gains and losses. The idea here is not to hedge risk only, however. Each stock, each investment needs to be looked at with thorough fundamental analysis in order to pick investments with a high expected rate of return and a significant margin of safety against loss during bad times. To the extent that economies like those of the BRICS nations are rising faster than those of Europe or North America, it may be wise to diversify your investment portfolio with emerging markets in mind. To the extent that there is a transparency problem when investing in China, Russia, India, Brazil, or South Africa, it is often wise to diversify your investment portfolio with an eye toward keeping part of your money in North America.

Choice of Investments when You Diversify Your Investment Portfolio

Diversification is not a substitute for simply picking good investments. Investing in gold can be a good idea under the right circumstances as can investing in beer be a good idea. Investing in oil, investing in China, and picking new winners in high tech stocks can all be profitable undertakings. However, a smart investor picks his stocks wisely, routinely watches each investment in his portfolio, and buys and sells investments accordingly. When you diversify your investment portfolio you do not commit to a “buy and hold” strategy. Rather you choose investments that fit a rational approach aimed at increasing opportunity while also reducing investment risk.

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