Posts Tagged ‘investment strategy’
“The trade” was very easy to do not long ago. Anyone with the basic knowledge of how money flows could have done it and profited.
Of course, I’m talking about the Federal Reserve “trade.” The investment strategy was straightforward: borrow money at low interest rates in the U.S., then invest the money for higher returns in emerging markets and bank the difference. If you could borrow money at three percent per annum in the U.S. and invest it for a six-percent return in emerging markets like India, why wouldn’t you?
The “trade” created a rush to emerging markets. And if you didn’t like the emerging markets, you could have invested in the stock market right here in the good old U.S.A. Again, borrowing money at a low rate to buy stocks from companies that were buying back their own stocks at the same time the Fed flooded the system with cold hard cash…how could you go wrong? (No wonder the rich got richer during the Fed’s quantitative easing programs.)
But, as I have written so many times, parties can only last for so long. Eventually, someone takes away the punch bowl. And from the looks of it, the Federal Reserve has pulled its own punch bowl.
In its statement yesterday after its two-day meeting, the Federal Reserve said, “…the Committee (has) decided to make a further measured reduction in the pace of its asset purchases…” (Source: Federal Reserve, January 29, 2014.)
In summary, the Federal Reserve will be buying $65.0 billion worth of bonds in February following its reduced $75.0 billion in purchases in January following its $85.0 billion-a-month bond … Read More
Imagine letting a losing trade run, and before you even realize it, the position is down 20%, 30%, or more. Your $10.00 stock declined 30% to $7.00; you decide to hold the position, hoping for a rebound, but deep down you know the stock would need to rally more than 40% just for you to break even. Clearly, it’s not easy when a stock falls to greater depths.
But that’s why you should take the opportunity to dump losers when the stock market rallies, as is the case at this time. Avoiding a loss is just as good as making profits.
As many of you know, I believe the stock market is vulnerable to some selling and a stock market correction, based on my technical analysis of the charts. The S&P 500 is fighting resistance to advance higher, and the Dow Jones Industrial Average, while setting anther record-high on Monday, continues to show the potential of a stock market correction of at least six percent.
Think about how the stock market has moved to these levels. The easy money policy pushed by the Federal Reserve has been a key driving force behind this four-year run-up. But now, with the Fed expected to begin tapering in December or early 2014, the focus will shift to the economy and corporate revenue growth—which aren’t so stellar. In fact, in both cases, they’re flat.
Even the surge in the initial public offering (IPO) market is a red flag in my view. When I see an IPO double on its first day, it reminds me of the euphoria that I witnessed in late 1999, just … Read More
If you are a stock market investor, you’ve probably come to the same realization I have: the stock market is behaving irrationally. These days, the fundamentals don’t really matter. What’s even more frustrating is that when you do talk about the fundamentals behind the market’s continued advance missing, you are ridiculed.
Soft revenues at public companies are just one area of concern. As of October 25, 244 companies on the S&P 500 have reported their third-quarter corporate earnings; only 52% of them registered revenues above the expectation, which means companies are selling less than they expected—not a good sign. Third-quarter corporate earnings growth is now expected to be just 2.3%. A month ago, the same number stood at an even three percent. (Source: FactSet, October 25, 2013.)
We are seeing some of the well-known bears of the stock market turning bullish. “Dr. Doom” is suggesting investing in stocks, and others like David Rosenberg, who has been bearish for years, are turning bullish.
Is this the peak optimism?
As it stands, investors believe the stock market is a safe place to be again. The charts of key stock indices only show an upward trajectory.
Chart courtesy of www.StockCharts.com
What will happen once the euphoria comes crashing down again? After all, irrationality cannot go on forever.
The most recent and best example of a stock market crash we have is from the financial crisis of 2008. We saw key stock indices come down like a rock. That stock market crash wiped out consumer confidence. Those who were retiring and saving each dollar for their golden days (by investing in stocks) saw their … Read More
I harp on about this over and over again: economic growth is when the average consumer is optimistic about their future; they are spending money, they know they will have a job tomorrow, and they are saving. In the U.S., we are seeing the opposite of all this.
In fact, consumer confidence in the U.S. continues to plummet; the Conference Board Consumer Confidence Index, an indicator of consumer spending, plunged more than 11% in October from September. (Source: Conference Board, October 29, 2013.)
But the misery doesn’t just end there for consumers in the U.S. economy. They are struggling to even buy the most basic of needs—food.
According to a recent study by the United States Department of Agriculture (USDA), in 2012, 17.6 million households in the U.S. economy were “food insecure”—they had difficulty bringing food to the table due to a shortage of resources. (Source: United States Department of Agriculture, September 2013.)
And as a result of so many Americans having trouble putting food on the table, it is costing taxpayers significantly. According to the U.S. Senate Budget Committee, over the last five years, the U.S. government has spent $3.7 trillion on 80 different poverty and welfare programs. The amount of money spent on these programs was five-times greater than combined spending on NASA, education, and all federal transportation projects over the time period. (Source: U.S. Senate Budget Committee, October 23, 2013.)
When I look at all these statistics showing how Americans are suffering, talk of economic growth or economic recovery just doesn’t sit well with me. I tend to focus on facts, rather than the noise. The noise … Read More
What the heck is with this stock market? The ability of the stock market to hold and avert a major correction over the past two weeks and then follow this with an upward move on the charts is a surprise—at least in my view it is, as it clearly shows the bullish bias controlling this stock market.
The NASDAQ and Russell 2000 are at new recent highs as the desire for growth by investors continues, which has largely been the story this year.
The S&P 500 is within striking range of its September record high.
The focus on the debt ceiling is important but also way overdone, in my opinion, given that we are in the midst of the third-quarter earnings season and, well, it has been subpar early on.
Yes, it’s still early in the earnings season, but I expect more subpar results. Of course, what I expect doesn’t matter—momentum and speculation are what drive this stock market.
So far, about six percent of S&P 500 companies have reported, and a dismal 55% of these companies have beaten estimates. That’s just not good. The results are also well below the historical average at just over 60%, and to make matters worse, the results were compared to estimates that were already lowered by Wall Street. Revenue growth is also lackluster, as I expected, which is not what we should be seeing with an upward-trending stock market.
The big banks reported decent results, but much of the easy money in this stock market sector has been made. The retail sector, which I view as critical due to its impact on … Read More
The availability of easy money flowing into the economy has propelled the stock market higher. And with the new Federal Reserve chairman appointee Janet Yellen to take lead in January, we could likely see the continuance of easy money and stock market gains into 2014.
While it hasn’t been all that difficult to make money over the past four-plus years of the current bull market, it could get tougher. This means that you may be able to make money on stocks deemed bearish by traders. (Read “How to Profit by Buying ‘Bad’ Companies.”)
Right now, you may be sitting on a heap of gains, and the stock market could likely move higher if the government resolves all of its issues. But you need to understand that being prudent is important for protecting your gains and achieving success in the stock market. If you get too greedy, you’ll likely see your profits sink.
It all comes down to risk management and the way you run your financial assets.
While things may seem great as the stock market advances higher, as we’ve seen over the past few weeks, when turmoil arises, stocks are quickly sold off. To help avoid major cuts to your gains, you should always think of a potential exit investment strategy. Optimism in a bull stock market can turn extremely quickly, even with the whispering of a single word like “tapering.”
I would … Read More
When we first took a look at Chart Industries, Inc. (GTLS) in April, the stock was trading around $80.00 a share. The natural gas build-out is a very worthy investment theme going forward and equity market portfolios should have some exposure.
The oil and natural gas industry is a bright spot in today’s economy, and there is genuine economic growth being generated from this sector. With North America gushing with natural gas, the infrastructure necessary to process, transport, and store it is vast and represents a good investment opportunity.
Chart Industries is a company that manufactures specialized storage solutions for liquefied natural gas (LNG), petrochemical and natural gas processing, medical use gases, and related storage equipment. It’s a solid company with a good track record of managing its business.
Now that there is a push to move the glut of natural gas, there is growing demand for LNG processing plants. Chart Industries was recently awarded a contract to build a C100N liquefaction plant for Stabilis FHR Oilfield LNG LLC. The customer plans to use the processing plant to produce 100,000 gallons of LNG per day in the Eagle Ford Shale region in Texas.
Chart Industries said that Stabilis will likely order four additional LNG liquefaction plants, which can produce either 100,000 gallons or 250,000 gallons per day. Chart Industries has already reserved manufacturing time slots for these additional processing plants.
Back in July, the company won an additional order from Kunlun Energy Investment, which is a wholly owned subsidiary of PetroChina Company Limited’s (PTR) Kunlun Energy Limited for self-contained LNG station modules. The latest order was over $50.0 million, and … Read More
October is here. Halloween and heightened stock market volatility are just around the corner. We have the ongoing debate over the budget, as the government was shut down yesterday, halting non-essential services.
There’s also the upcoming third-quarter earnings season this month. (Read “How Easy Money Is Hiding the Real Problems in Corporate America.”) As I have said in previous commentaries, I’m not that positive about third-quarter revenue growth.
The S&P 500 and Dow Jones Industrial Average are down over two percent from their October 18 record-highs and could likely head lower on the charts. With the key stock indices up over 20% this year, you know that the fourth quarter will bring surprises and volatility to the stock market.
This is not a stock market to just watch and wait for things to happen. You need to be proactive in your investment strategy and make sure your capital is protected for the future.
So here’s what to do.
If you don’t like volatility, then you may want to cash out. While you maybe made some decent gains, when you have enough and are happy with your gains, then exiting the stock market makes perfect sense. Having excess investable cash would be welcomed if the stock market corrected.
In my view, the upside potential for the fourth quarter will likely be less than five percent. Of course, this is a rough estimate, but in my view, the downside risk in the stock market is higher based on the host of market uncertainties not only domestically but in Europe and China as well.
If you are sitting on the fence, … Read More
Analysts and investors demand clarity when a company reports or offers up guidance. But when it comes to the Federal Reserve, investors and analysts don’t seem to demand the same level of clarity, even though the central bank has been what I would label “wishy washy” as far as its policies and what it offers up to the market.
The stock market is trading (and it has been for a while) on what the Federal Reserve says about its quantitative easing program, namely its monthly bond-buying strategy.
Yet the Federal Reserve appears to be saying one thing, only to contradict it with the next statement. This type of confusion and uncertainty is not what I want to hear. I want more certainty in order to formalize my trading and investment strategy. The cloudiness offered by the Federal Reserve doesn’t help.
Case in point: at last week’s Federal Open Market Committee (FOMC) meeting, Federal Reserve Chairman Ben Bernanke, to the surprise of nearly everyone both on Wall Street and Main Street, announced that the bank had decided against tapering, despite what I see as moderate growth in the economy. Yes, the country continues to slug along, but with the second-quarter gross domestic product (GDP) growth at 2.5% and with the Federal Reserve estimating the country will continue to expand at a rate above two percent this year and in 2014, the Federal Reserve should have begun to rein in some of its bond buying. Pundits were estimating a $10.0-billion cutback to start.
Well, even that small cut didn’t happen. Bernanke said the economy was still fragile, and the Fed didn’t … Read More
At the top of my watch list in the coffee sector is Starbucks Corporation (NASDAQ/SBUX), just because of its strong brand recognition not only in the United States but worldwide. Whether it’s in Asia, Europe, or Latin America, you can always find that familiar green Starbucks logo.
However, when I have a craving for a baked treat (though I seldom do), I do like the “Boston Kreme” donut and “Cheddar Cheese Bagel Twist” at Dunkin’ Donuts, operated by Dunkin Brands Group, Inc. (NASDAQ/DNKN), which also owns Baskin-Robbins. Dunkin is known more for its donuts than its coffee; nevertheless, it is a coffee shop that many customers will venture out to for a sweet treat.
Chart courtesy of www.StockCharts.com
Dunkin is still primarily an American brand, but the company is considering returning to the United Kingdom. The company is looking at opening 50 outlets in the greater London area within five years, but that number could run as high as 150 outlets in the United Kingdom. (Source: Rocco, M., “Dunkin’ Donuts Plans Return to U.K.,” Fox Business Network web site, September 12, 2013.) The company also has plans to move into Moscow.
While the expansion plans are encouraging, I really doubt the Dunkin brand can become the global icon that Starbucks has become. In China, for instance, Starbucks is rapidly growing.
An alternative investment opportunity to Dunkin—and a company that the people at Dunkin should be … Read More
Since the announcement from the Federal Reserve about tapering off quantitative easing, the key stock indices have been showing increased selling pressures. Just take a look at the chart of the S&P 500 below.
Chart courtesy of www.StockCharts.com
The S&P 500 started 2013 with momentum to the upside. Investors bought in hopes that the index would continue to go higher, and by no surprise, it did reach its all-time high. As expected, after the Federal Reserve announcement, sellers took hold of the S&P 500, and it broke below its 50-day moving average for the first time this year (indicated by the black circle in the chart above)—a bearish indicator, according to technical analysts.
The last time the S&P 500 reached this far below its 50-day moving average was in October 2012. When that happened, the S&P 500 declined six percent, and it didn’t recover until December (as noted by the green circle in the above chart).
Note: other key stock indices like the Dow Jones Industrial Average and the NASDAQ Composite Index have also fallen below their 50-day moving averages.
Looking at this, I have to ask: is the bear market rally that lured investors into buying over?
The decline in the key stock indices has certainly proved my theory: money printing was a major factor in their flight to their all-time highs. Now, when we have hints that the Federal Reserve will be pulling back on its quantitative easing, the key stock indices are sliding lower.
Corporate earnings, one of the main reasons for the rise in the key stock indices, aren’t improving as expected either. As a matter … Read More
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