Loading...

Follow Mauldin Economics on Feedspot

Continue with Google
Continue with Facebook
or

Valid

By Robert Ross

I’m a safe income guy always on the hunt for the safest and most stable dividend-paying stocks.

And I can tell you one thing. There’s always a way to “play it safe,” even with something as volatile as Bitcoin.

Here I’ll share the best way to ride Bitcoin’s current bull market without taking on a lot of risk.

Bitcoin Is Far Too Risky for Most Investors

Bitcoin is a polarizing topic. Some economists think Bitcoin’s value should be $0. Others think it’s as revolutionary as the internet.

But one thing is certain: The price of Bitcoin is incredibly volatileThis makes it a non-starter for most income investors.

Fortunately, I’ve zeroed in on a company that actually benefits from Bitcoin’s volatility. It’s a safe and stable way to profit from Bitcoin without exposing yourself to a lot of risk.

But first, let’s take a closer look at Bitcoin’s wild price swings…

Bitcoin once shot up 1,882% in a little under a year.

It went from $998 in January 2017 to $19,783 in December 2017. That’s incredible. But it didn’t last.

One year later, Bitcoin had dropped around 83% to $4,935. You can see this in the next chart.

Now we’re back in a Bitcoin bull market. Over the last six months, Bitcoin’s price has rallied over 300%.

I’m not sure about you, but most people can’t stomach that much volatility. And frankly, they shouldn’t. Buying Bitcoin is simply too risky for most investors.

That’s why we’re coming at this from a different angle…

The Low-Risk Way to Profit from Bitcoin’s Volatility

Instead of buying Bitcoin directly, we’re looking at companies that benefit from Bitcoin’s volatility.

One of the best ways to do this is through Bitcoin’s “picks-and-shovels” stocks.

The term comes from the California Gold Rush. Most of the miners who flooded into California during the 19th century never struck it rich. And many went broke.

But smart businessmen figured out that selling picks, shovels, and other essentials to the miners was much more profitable—and far less risky.

The same concept applies here…

In the Bitcoin universe, the best picks-and-shovels stock is CME Group (CME). The company operates the leading Bitcoin futures exchange. (It’s also one of the only exchanges of its type.)

At its simplest level, futures contracts let people bet on how much the price of something will rise or fall.

Futures contracts also act as a form of insurance. For example, say you own one bitcoin. You don’t want to sell it. But you want to protect yourself in case the price falls. You can do that through a futures contract. It lets you lock in gains and limit your losses.

With an asset like Bitcoin, where the price could go up or down dramatically, having the option to lock in gains like that is a big plus.

CME Group is the leading company offering this big plus. And that means big money for the company...

A Billion-Dollar (Plus) Record Day

When Bitcoin’s price is on a run, as it is right now, CME makes a lot more money.

See, every time someone buys or sells a CME Group Bitcoin contract, the company takes a small fee. So when trading volume goes up, so does CME’s bottom line.

And volume is on the rise. In fact, the company reported record volume on its Bitcoin futures exchange on May 13. It processed 33,700 contracts, equal to $1.35 billion.

So clearly, there’s rising demand for CME’s services.

All Volatility Is Good for This Company

Another good thing about CME is that it doesn’t just benefit from Bitcoin’s volatility. It also benefits from stock, bond, and currency volatility.

With trade war news rag dolling markets and stocks at all-time highs, now is a good time to hold companies that benefit from volatility.

CME group also pays a safe and stable 1.6% dividend. Then there’s the cherry on top: The company has a history of paying a special dividend every year. So a special dividend could more than double CME’s dividend yield.

While Bitcoin futures only make up a small part of CME’s business, the rising interest in cryptocurrencies—which are now a $350-billion market—should continue to drive interest in their platform.

So, while Bitcoin is too risky for most investors—remember that 83% price drop—you still have an opportunity to profit from Bitcoin’s bull run by investing in a safe and stable company like CME Group.

The Sin Stock Anomaly: Collect Big, Safe Profits with These 3 Hated Stocks

My brand-new special report tells you everything about profiting from “sin stocks” (gambling, tobacco, and alcohol). These stocks are much safer and do twice as well as other stocks simply because most investors try to avoid them. Claim your free copy.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Patrick Watson

Remember “No Child Left Behind,” George W. Bush’s education reform plan? Congress passed it in 2001.

Whether that law actually helped is subject to debate, but Bush picked a good name for it. Humans are social creatures. Our instincts tell us to make sure no one in our tribe gets “left behind,” economically or otherwise.

That instinct breaks down sometimes. Or we disagree about who belongs in our tribe. It’s a big problem in either case.

Hence, when people say even the poorest Americans live better than their grandparents did, or better than those in other countries, they miss the point.

Past generations and people overseas are the wrong comparison. We get angry when our own group leaves us behind.

Millions of Americans feel that way. And the data say they aren’t wrong.

Unhappy Quarter

In 2013, the Federal Reserve began conducting a yearly “Survey of Household Economics and Decisionmaking,” under the catchy acronym “SHED.” It measures the economic well-being of US families and identifies possible risks.

The latest SHED found 34% of adult Americans say they are “living comfortably.” Another 41% report they are “doing okay.” So 75% of us are generally satisfied, economically.

That sounds great, and in one sense it is. The 2013 SHED found only 62% were in those two groups. So to now have three-quarters satisfied is a significant improvement.

The problem is 75% ≠ 100%, and millions of people aren’t economically satisfied.

Specifically, 18% of us think we are “just getting by,” and 7% are “finding it difficult to get by.”

We lack historical data for comparison, but to me, this seems high.

Note, being satisfied doesn’t require any particular income or net worth. Lots of well-paid people think they are just getting by, and some low-income folks believe they’re doing okay.

But however you slice it, one-fourth of the adult population thinks it is being left behind. This is a problem.

No Cushion

This month the current expansion became the longest in postwar history. Unemployment is historically low. So why are so many people unsatisfied?

SHED has some other data that helps explain.

Just as seat cushions let you sit more comfortably, a financial cushion helps you feel more secure. Conversely, lack of a cushion makes you more anxious.

The SHED researchers asked respondents how they would cover a $400 unexpected expense. That’s really not much. A toothache, an emergency room visit (even if you’re insured), a minor car repair—all can easily run $400 or more.

Some 61% of Americans say they could cover such an emergency with cash, savings, or a credit card they paid off the next month.

But almost four out of ten Americans would have to borrow the money, sell something, turn to relatives, or just give up.

That’s not all. Even without emergencies, 17% of adults said they expected to miss some of their routine bill payments that month. And not always for luxuries; 7% expected to leave rent, mortgage, or utilities at least partially unpaid.

Adding it all together, the SHED data show about one-third of US adults either can’t pay all their bills or are one small problem away from it.

If you’re reading this, you probably aren’t in that group. But don’t rest easy.

Tight Spot

Some of these people who can’t pay their bills probably made unwise choices. But it is still the case that…

  • Even life’s basic necessities often cost more than they should.

So before you condemn them, consider the possibility you may join them.

While the SHED data show some improvement since 2013, it coincided with a growing economy and falling unemployment. Neither will continue once the next recession strikes. Which could be soon.

If a third of the population can’t pay its bills today, how big will that group be when unemployment rises to 8% or more?

That’s not a crazy idea. It was reality as recently as 2013. 

When (not if) that happens, the number of economically distressed Americans is going to rise considerably. Probably to more than half the population—enough to force major political change in an attempt to ease its pain.

Those who are perceived to have caused that pain will be in a tight spot. Their best move: Act now to help those millions of left-behind Americans.

As far as I can tell, most aren’t. They’re too busy enjoying their own good fortune.

This isn’t likely to end well.    

The Great Reset: The Collapse of the Biggest Bubble in History

 New York Times best-seller and renowned financial expert John Mauldin predicts an unprecedented financial crisis that could trigger in the next five years. Most investors seem completely unaware of the relentless pressure that’s building right now. Learn more here.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Robert Ross

In late June, San Francisco banned e-cigarette sales completely. That means no brick and mortar sales. And no e-cigarette deliveries for online purchases.

Many cities already restrict vaping and e-cigarette sales. But San Francisco is the first major US city to ban sales outright.

Granted, it’s a cultural and political outlier. But other cities are already considering similar laws. So this looks like the start of a bigger trend that could weigh heavily on certain tobacco companies.

Despite this thread, tobacco companies are still a great, recession-proof investment. And there’s one tobacco stock that will benefit from the crackdown on e-cigs big time.

The 800-Pound Gorilla of E-Cigs

E-cigarettes hit the US a little over a decade ago. Now it’s a $25-billion market.

The e-cig explosion has been a big boon for certain tobacco companies.

That’s especially true for Altria Group (MO), which also makes Marlboro cigarettes. In 2018, Altria bought a 35% stake in Juul Labs, the world’s largest e-cigarette company.

Juul is the 800-pound gorilla of the e-cigarette world. It has a 70% market share. (Ironically, it’s based in downtown San Francisco.)

Juul expects sales to grow by 160% to $3.4 billion in 2019. But if other cities follow San Francisco’s lead, this figure—and Altria’s 35% cut—could shrink dramatically.

It would hurt other e-cig-dependent tobacco companies as well, like UK-based Imperial Brands (IMBBF). Imperial generates around 3% of sales from its e-cigarette line. That sounds small. But e-cigs made up 40% of the company’s sales growth over the last two years.

Then there’s British American Tobacco (BAT). The company created its own vapor brands, including Vuse and Vype. While British American’s core tobacco sales were flat in 2018, the vapor segment grew 19% over the last year.

More e-cig bans would certainly slow this rapid growth. But income investors should still take a close look at tobacco stocks…

A Catalyst for Traditional Cigarettes

Governments will likely continue to restrict vaping and e-cigarette sales. This shouldn’t be all that surprising.

E-cigarette use among minors has doubled since 2017, according to a recent survey from the National Institute on Drug Abuse. It was the largest year-over-year jump for any substance ever measured by the 44-year-old survey.

That sort of thing makes parents panic. And panicked parents can push local governments to “do something,” even if the overall public health benefit is questionable.

As Dr. Steven A. Schroeder, a professor of health at the University of California, San Francisco, put it, “It’s really smart politics but dubious public health.”

Nevertheless, more e-cig restrictions could stifle a major growth driver for tobacco companies. But that’s not the end of the world for Big Tobacco.

Most tobacco companies still make most of their money from traditional cigarettes. In fact, traditional cigarettes accounted for 95% of all tobacco sales in 2018.

And there’s a good reason for that: Cigarettes are highly addictive. That’s one of the reasons tobacco stocks are such a great any-weather investment.

You only have to look back to the global financial crisis to see this.

US stocks fell 27% between August 2007 and August 2010. But tobacco stocks held up remarkably well.

Altria and British American, which are a good proxy for tobacco stocks, grew 7.9% over the same period, as you can see in the chart below.

This wasn’t a fluke, either.

They also grew during the 2001 recession, rising 5.5% while the overall stock market dropped 15.5%.

In other words, while vaping bans don’t bode well for certain tobacco companies, that doesn’t necessarily matter for us. Many tobacco stocks are still great, recession-resistant investments.

E-Cig Bans Can’t Touch This Company

This might sound counterintuitive, but vaping bans could actually boost a company like Universal Corporation (UVV).

That’s because this century-old Virginia-based company does one thing: sell raw tobacco leaf to major players like China National Tobacco, Altria Group, and British American Tobacco.

It doesn’t have so much as a toe in the e-cigarette market. So e-cigarette regulations can’t hurt the company. (Perversely enough, they might even help, as smokers return to traditional cigarettes if and when e-cigarettes become harder to buy.)

Investors took notice of Universal’s unique position last week. Shares jumped 4.1% after the San Francisco ban was announced.

This is part of the reason Universal Group is the best tobacco company to buy right now. And for dividend investors like us, it offers a safe 5% dividend yield.

Don’t Get Smacked on the Way Down

Here at The Weekly Profit, we’re focused on finding safe and stable dividend-paying stocks. These are companies you want to own no matter what’s happening in the economy or the market.

Frankly, most investors take on too much risk. This leaves them vulnerable when the market heads south.

That’s especially true right now. As you likely know, the stock market is near all-time highs. And the US economy is nearing the end of a decade-long expansion.

Meanwhile, several closely watched indicators are pointing to a recession in the coming months.

That’s why you should start preparing your portfolio now. After all, nothing goes up forever. And you don’t want to get smacked on the way down.

The right tobacco stocks can help. Remember, people who buy cigarettes buy them no matter what. That makes tobacco stocks very resilient.

Yes, I know tobacco companies make addictive, unhealthy products. So does Coca-Cola (KO). And Pfizer (PFE). And a slew of other companies.

My job is to help you find the best dividend-paying stocks—not to play morality cop. We’re all grown-ups here. You can decide for yourself if investing in tobacco is something you’re comfortable with.

But bear in mind, the industry’s profits are almost guaranteed. So it’s at least worth a look.

The Sin Stock Anomaly: Collect Big, Safe Profits with These 3 Hated Stocks

My brand-new special report tells you everything about profiting from “sin stocks” (gambling, tobacco, and alcohol). These stocks are much safer and do twice as well as other stocks simply because most investors try to avoid them. Claim your free copy.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By John Mauldin

I think Lord Keynes himself would appreciate the irony that he has become the defunct economist under whose influence the academic and bureaucratic classes now toil, slaves to what has become as much a religious belief system as an economic theory.

Men and women who display appropriate skepticism on other topics indiscriminately funnel facts and data through a Keynesian filter without ever questioning the basic assumptions. Some go on to prescribe government policies that have profound effects upon the citizens of their nations.

And when those policies create the conditions that engender the income inequality they so righteously oppose, they often prescribe more of the same bad medicine. Like 18th-century physicians applying leeches to their patients, they take comfort that all right-minded people will concur with their recommended treatments.

This is an ongoing series of a discussion between Ray Dalio and myself (read Part 1, Part 2, Part 3, and Part 4) . Today’s article addresses the philosophical problem he is trying to address: income and wealth inequality.

Last week I dealt with the equally significant problem of growing debt in the United States and the rest of the world. The Keynesian tools much of the economic establishment wants to use are exacerbating the problems. Ray would like to solve it with a blend of monetary and fiscal policy, what he calls Monetary Policy 3.

The Problem with Keynesianism

Let’s start with a classic definition of Keynesianism from Wikipedia, so that we can all be comfortable that I’m not coloring the definition with my own bias (and, yes, I admit I have a bias). (Emphasis mine.)

Keynesian economics (or Keynesianism) is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.

The theories forming the basis of Keynesian economics were first presented by the British economist John Maynard Keynes in his book The General Theory of Employment, Interest and Money, published in 1936 during the Great Depression. Keynes contrasted his approach to the aggregate supply-focused “classical” economics that preceded his book. The interpretations of Keynes that followed are contentious, and several schools of economic thought claim his legacy.

Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle. Keynesian economics advocates a mixed economy—predominantly private sector, but with a role for government intervention during recessions.

Central banks around the world and much of academia have been totally captured by Keynesian thinking. In the current avant-garde world of neo-Keynesianism, consumer demand—consumption—is everything. Federal Reserve policy is clearly driven by the desire to stimulate demand through lower interest rates and easy money.

And Keynesian economists (of all stripes) want fiscal policy (essentially, government budgets) to increase consumer demand. If the consumer can’t do it, the reasoning goes, then the government should step into the breach. This of course requires deficit spending and borrowed money (including from your local central bank).

Essentially, when a central bank lowers interest rates, it is encouraging banks to lend money to businesses and telling consumers to borrow money to spend. Economists like to see fiscal stimulus at the same time, as well. They point to the numerous recessions that have ended after fiscal stimulus and lower rates were applied. They see the ending of recessions as proof that Keynesian doctrine works.

This thinking has several problems.

The Flaws of Keynesian Stimulus

First, using leverage (borrowed money) to stimulate spending today must by definition reduce consumption in the future. Debt is future consumption denied or future consumption brought forward. 

Keynesian economists argue that bringing just enough future consumption into the present to stimulate positive growth outweighs the future drag on consumption, as long as there is still positive growth.

Leverage just equalizes the ups and downs. This has a certain logic, of course, which is why it is such a widespread belief.

Keynes argued, however, that money borrowed to alleviate recession should be repaid when growth resumes. My reading of Keynes does not suggest he believed in the unending fiscal stimulus his disciples encourage today.

Secondly, as has been well documented by Ken Rogoff and Carmen Reinhart, there comes a point at which too much leverage becomes destructive. There is no exact way to know that point.

It arrives when lenders, typically in the private sector, decide that borrowers (whether private or government) might have some difficulty repaying and begin asking for more interest to compensate for their risks.

An overleveraged economy can’t afford the higher rates, and economic contraction ensues. Sometimes the contraction is severe, sometimes it can be absorbed. When accompanied by the popping of an economic bubble, it is particularly disastrous and can take a decade or longer to work itself out, as the developed world is finding out now.

Every major “economic miracle” since the end of World War II has been a result of leverage. Often this leverage has been accompanied by stimulative fiscal and monetary policies. Every single “miracle” has ended in tears, with the exception of the current recent runaway expansion in China, which is still in its early stages.

Insufficient Income Causes Recessions

I would argue (along, I think, with the “Austrian” economist Hayek and other economic schools) that recessions are not the result of insufficient consumption but rather insufficient income.

Fiscal and monetary policy should aim to grow incomes over the entire range of the economy. That is best accomplished by making it easier for entrepreneurs and businesspeople to provide goods and services. When businesses increase production, they hire more workers and incomes go up.

Without income, there are no tax revenues to redistribute. Without income and production, nothing of any economic significance happens. Keynes was correct when he observed that recessions are periods of reduced consumption, but that is a result and not a cause.

Entrepreneurs must be willing to create a product or offer a service in the hope there will be sufficient demand for their work. There are no guarantees, and they risk economic peril with their ventures, whether we’re talking about the local bakery or hairdressing shop or Elon Musk trying to compete with the world’s largest automakers. If government or central bank policies hamper their efforts, the economy stagnates.

The Reason Keynesianism Sticks

Many politicians and academics favor Keynesianism because it offers a theory by which government actions can become decisive in the economy. It lets governments and central banks meddle in the economy and feel justified.

It allows 12 people sitting in a board room in Washington DC to feel they are in charge of setting the most important price in the world, the price of money (interest rates) of the US dollar and that they know more than the entrepreneurs and businesspeople who are actually in the market risking their own capital every day.

This is essentially the Platonic philosopher king conceit: the hubristic notion that a small group of wise elites is capable of directing the economic actions of a country, no matter how educated or successful the populace has been on its own.

And never mind that the world has multiple clear examples of how central controls eventually slow growth and make things worse over time. It is only when free people are allowed to set their own prices of goods and services and, yes, even interest rates, that valid market-clearing prices can be determined. Trying to control them results in one group being favored over another.

In today's world, savers and entrepreneurs are left to eat the crumbs that fall from the plates of the well-connected crony capitalists and live off the income from repressed interest rates. The irony of using “cheap money” to drive consumer demand is that retirees and savers get less money to spend, and that clearly drives their consumption down.

Why is the consumption produced by ballooning debt better than the consumption produced by hard work and savings? This is trickle-down monetary policy, which ironically favors the very large banks and institutions.

If you ask Keynesian central bankers if they want to be seen as helping the rich and connected, they will stand back and forcefully tell you “NO!” But that is what happens when you start down the road of financial repression. Someone benefits. So far it has not been Main Street.

The Great Reset: The Collapse of the Biggest Bubble in History

New York Times best seller and renowned financial expert John Mauldin predicts an unprecedented financial crisis that could be triggered in the next five years. Most investors seem completely unaware of the relentless pressure that’s building right now. Learn more here.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Patrick Watson

Investors are in a buying mood despite many economic warning signs. Why?

For some, it’s because they expect the Federal Reserve to cut interest rates and otherwise “stimulate” the economy. They believe (correctly) it would drive stock and real estate prices higher.

At the risk of stating the obvious… higher asset prices mainly benefit those who own the assets. Which, in the stock market’s case, is not most Americans.

The ordinary worker’s main asset is the income stream from their job. Lower interest rates don’t necessarily help them.

Nonetheless, that seems to be what the Fed will give us, if President Trump gets his way.

Convenient Timing

The Federal Funds rate, the Fed’s overnight benchmark, is historically low right now. But with zero rates now a more recent memory than 5% rates, it seems high to many folks. President Trump is one of them.

The weird part is that Trump appointed most of the Fed governors whom he now calls incompetent. If he wanted doves, many were available. He didn’t pick them and now blames everyone but himself for the results.

But set that aside. Fed chair Jerome Powell says they respond to data, not presidential jawboning.

I used to think that was true. Now, I’m not so sure.

Amid the drip-drip-drip, it’s easy to lose sight of the timeline. Bloomberg has a handy digest of Trump’s Federal Reserve comments. His first hit was almost a year ago: July 19, 2018.

“I’m not thrilled” the central bank is raising borrowing costs and potentially slowing the economy, [Trump said] in an interview with CNBC. “I don’t like all of this work that we’re putting into the economy and then I see rates going up."

It got worse from there, but the Fed seemed unperturbed. Powell and the FOMC kept raising rates and markets dropped last fall. After the December rate hike and some especially hawkish Powell comments, Trump reportedly discussed firing Powell.

(I reported months earlier that Trump appeared to have that power, though I didn’t predict he would use it.)

Anyway, six weeks after the December rate hike, the Fed made a remarkably convenient reversal. The committee was suddenly sure rates were high enough.

Was it coincidence the Fed changed course right after Trump raised the pressure? Maybe. But other things were happening behind the scenes.

Private Dinner

Here’s a little-known fact for you. The Fed chair’s daily calendar is public record. You can see it on the Federal Reserve website after a two-month delay.

Powell’s schedule is pretty boring: mostly meetings and phone calls with Fed officials and other central bankers.

Last January—between those two FOMC meetings in which the Fed changed its mind—Powell had several contacts with Treasury Secretary Steven Mnuchin.

He also met White House economic advisor Larry Kudlow, as well as Goldman Sachs (GS) CEO David Solomon and several members of Congress.

Those aren’t necessarily unusual. Look at other months and you’ll see Powell and Mnuchin talk frequently. About what? We don’t know.

Still, high officials have busy schedules. These probably weren’t social calls. Maybe somebody delivered Powell a, ahem, “message.”

On February 4, Powell had a private dinner with Secretary Mnuchin and President Trump. Then the next day a meeting with Senate Majority Leader Mitch McConnell.

Possibly this was all normal business… but given that period’s pivotal events, it’s fair to wonder.

And it’s a fact that since then, the Fed has avoided raising rates, just as Trump wanted. It hasn’t cut rates (yet) and may not. And Trump is still making threats.

So one interpretation is that Powell tried to mollify Trump by meeting him halfway, but Trump isn’t satisfied. He clearly wants lower rates, not just stability.

What if he gets them?

Path to Japan

This used to be pretty simple. When the economy slowed, the Fed would cut rates. This encouraged borrowing and investment. People bought houses. Businesses expanded and hired people. The economy would recover.

Now, it doesn’t seem to work that way. My friend Peter Boockvar succinctly explained why in one of his recent letters. The problem is that “easy money” stops working when it becomes normal, as it now is.

"[When easy money is] a permanent state of being, it doesn't incentivize any new economic behavior to happen today instead of tomorrow."

Bingo. Lower rates don’t encourage borrowing unless potential borrowers think it’s a limited-time opportunity. Which they don’t anymore, and shouldn’t, since the Fed shows no sign of ever going back to what was once normal.

That’s not just me. The FOMC’s own projections show they think 2.5% is now the “longer run” normal. Even the most hawkish foresee only 3.3%.

When this is also the president’s stated desire, it is very hard to foresee the Fed raising rates significantly higher than they are now. Hence, rate cuts probably won’t do much to stimulate the economy.

Nonetheless, lower rates from here would have effects. They would…

  • Inflate stock and real estate prices even more,
  • Cut returns for retirees and small savers, and
  • Reduce the federal government’s borrowing costs.

That last point may be significant. As John Mauldin showed last weekend, there is simply no way to balance the budget with interest rates where they are now. Maybe that is Trump’s concern.

Or maybe not. Lower rates would also help, say, highly leveraged real estate developers.

What rate cuts won’t do, in my opinion, is prevent or even mitigate the next recession. More likely, they will push the US further down the same path Japan is now on: decades of slow growth, enormous debt, and social stress.

That’s the best case. The worst one?

You don’t want to think about it.

The Great Reset: The Collapse of the Biggest Bubble in History

 New York Times best-seller and renowned financial expert John Mauldin predicts an unprecedented financial crisis that could trigger in the next five years. Most investors seem completely unaware of the relentless pressure that’s building right now. Learn more here.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Jared Dillian

Trump is the most polarizing figure of all time.

If you say something good about him, half of people will hate you. If you say something bad about him, the other half will hate you.

It is a no-win situation. So financial writers, myself included, never write about him.

But that’s dumb! Donald J. Trump is the biggest driver of financial markets in the world. Hands down. How can you not write about him?

So here is what we are going to do.

I’m going to talk about Trump, but I’m going to talk about Trump in a rational, nonpartisan, equitable fashion.

Trump is capable of both good and bad. You can make money off Trump by anticipating his moves—which are not hard to predict.

Choo Choo

Let’s keep this really simple:

Trump wants stocks higher.

  • Stocks are higher.

Trump wants interest rates lower.

  • Interest rates are lower.

Trump wants the dollar weaker.

  • The dollar is getting weaker.

Trump wants oil lower.

  • Oil has not been especially high.

Do you really want to get into a fight with Trump?

Amazingly, people do. People get into a fight with Trump all the time. Lots of people out there trying to short bonds.

Dude. The president is literally ordering the central bank to lower interest rates and threatening to fire the head guy unless he gets his way. And you want to short bonds? Right.

Trump’s influence on monetary policy is unquestionably bad. He has obliterated decades of presidential norms and has set a precedent that will result in more executive interference at the Fed, resulting in (eventually) sharply higher inflation.

So yes, it is unquestionably bad. Doesn’t mean you can’t trade on it!

Let me tell you how powerful this is: Trump has been badgering the Fed for months. Interest rates have been coming down. Interest rates have been coming down around the world, in sympathy. Trump has lowered interest rates globally. You want to get into a fight with this?

Trump is not going to stop until interest rates are negative and we’re doing QE.

Think I’m kidding?

Lots of people out there saying bonds are overbought.

Really?

Trump, good or bad, is the most transformative president we’ve had in a really long time. The office will never be the same. Obama, Bush I and II, and Clinton all colored within the lines.

I am not much of a stock market bull… but I ain’t gonna short ‘em.

Predicting Trump

The goal here is to front-run Trump.

The thing about Trump is that he really only focuses on one thing at a time.

Back when tax reform was going on, Trump was focused on it to the exclusion of all else. I wondered, what’s next after tax reform? Trade! I figured that tariffs were coming and I made a bunch of steel stock recommendations for my newsletter subscribers.

They were great trades. Of course, the steel stocks are well off the highs and the tariffs have been counterproductive, but it was a great trade at the time, which is all that counts.

Right now, Trump is focused on the Fed. What comes after the Fed?

Honestly, I think he is going to be focused on the Fed (along with the ECB and the price of oil) for a really long time. Imagine you had a Bloomberg terminal and you had the power to affect any price in the world. That’s what he is doing.

In a way, having Trump as president has made trading easier rather than harder. I’m not gonna lie: I have made a lot of money off Trump trades. I just typically don’t crow about the fact that they’re Trump trades, because RIP my inbox.

We know where Trump stands on just about every financial asset in the world. Trump doesn’t like tech. Short tech. Trump thinks drug prices are too high. Short healthcare.

Trump likes oil and coal and mining and such. Buy XLB (a basic materials ETF). Trump hates Mexico and loves Japan. The list goes on and on and on.

I am shocked—shocked, I tell you, that some knucklehead hasn’t come up with a Trump ETF. It would be one of the best ETF launches of all time.

Whether you like Trump or don’t like Trump, how about putting your feelings aside and focus on making money off Trump. That sounds like a far more productive use of your time.

Free Report: 5 Key ETF Trading Strategies Every Investor Should Know About

From Jared Dillian, former head of ETF trading at Lehman Brothers and renowned contrarian analyst, comes this exclusive special report. If you’re invested in ETFs, or thinking about taking the plunge into the investment vehicle everyone’s talking about, then this report is a clever—and necessary—first step. Get it now.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Patrick Watson

Just as an army moves on its stomach, an economy moves on ships, trucks, and planes. They carry the goods whose purchase adds up to growth.

Nowadays many goods are digital, delivered electronically. But we still need lots of physical stuff which must travel to the customer.

Fewer goods in motion mean lower growth… and that’s exactly what is happening.

With technology, businesses have grown adept at managing inventory. Goods don’t typically sit on store shelves very long. Retailers stop ordering quickly when demand falls.

Lower freight volume is a symptom of a disease that’s getting worse.

Falling Freight Rates

Last summer, the nation’s overheated highways were crammed. Truckers had all the business they could handle as companies rushed to import Chinese goods ahead of expected tariffs.

I said at the time it would end badly. Sure enough, now truckers are struggling with excess capacity and lower volume. Freight rates have dropped hard this year.

Some smaller trucking companies have declared bankruptcy while bigger ones like Knight-Swift and Schneider have cut their annual forecasts. Several Wall Street analysts have downgraded J.B. Hunt, one of the biggest players.

It’s not just trucks, either. Container ship lines, railroads, warehouse operators—the entire logistics industry is starting to contract. You can see it in these recent Wall Street Journal headlines…

  • Freight Operators Slowed Hiring in May on Weaker Shipping Demand
  • Union Pacific Says Uncertainty, Harsh Weather Driving Down Rail Shipments
  • Trade Tensions Worry Ship Operators
  • Imports at Southern California Ports Fell Sharply Last Month

This was perfectly predictable. The 2018 transport boom didn’t represent higher demand for imported goods. It was future demand, pulled forward in time. President Trump’s tariff threats gave importers incentive to rush, and they did.

Now the future is here. Shelves are full, so traffic is no longer growing as much, and in some segments it’s falling. The widely regarded Cass Freight Index shows declining year-over-year volume for the last six consecutive months.


Chart: Cass Information Systems

 

Spilling Over

Excess stockpiles of imported goods aren’t the only sign of slowdown. Manufacturing activity is also slowing, both in the US and elsewhere.

This month the IHS Markit Purchasing Managers Index for US manufacturing activity dropped to its lowest level since September 2009, when the economy was in recession. Now it is only a fraction away from signalling an outright contraction.

This might explain an otherwise odd headline I noticed recently: “North American robot orders down in Q1.” The title refers to industrial robots, the kind that have been taking human jobs.

That trend seems to be slowing… which is what you would expect if factories have plenty of capacity to meet current demand.

Worse, the manufacturing weakness is spilling over into the rest of the economy. Here’s IHS Markit chief economist Chris Williamson:

Recent months have seen a manufacturing-led downturn increasingly infect the service sector. The strong services economy seen earlier in the year has buckled to show barely any expansion in June, recording the second-weakest monthly growth since the global financial crisis.

All these comparisons to 2008 and 2009 are more than a little chilling. I remember those years pretty well, and they weren’t fun. To now see similar conditions is, at the very least, not good and possibly very bad.

Meanwhile, Wall Street thinks a magical solution will appear.

Delayed Recession

A lot of this is connected to the ongoing trade war, but not all. The economic expansion would probably be nearing its end anyway. Growth cycles rarely last as long as this one has.

Here’s my theory. The economy should have entered recession a year ago. The late-2017 tax cuts bought a little time by encouraging business investment, while the Fed’s rate hikes made homebuyers rush to beat rising mortgage rates.

Then, the Trump trade fight sparked an import boom that created more activity and jobs. That extended the growth a little more. But those effects were temporary, and now they’re running out.

Some investors think the Fed will pull a rabbit out of the hat by cutting rates again. But access to credit isn’t the problem. Businesses that want to borrow can do so on good terms. The problem is they don’t need to borrow unless they are growing, and they’re not. The Fed can’t fix that.

Shipping weakness is an early warning sign. It doesn’t mean recession is imminent, but the longer it lasts, the more certain we can be that the weakness will spread.

Here’s how Cass says it in its latest report.

  • “The freight markets, or more accurately goods flow, has a well-earned reputation for predictive value without the anchoring biases that are found in many models which attempt to predict the broader economy.”
  • “The volume of freight in multiple modes is materially slowing and suggests an increasingly bearish economic outlook for the U.S. domestic economy.”
  • “With the -6.0% drop in May, we see the shipments index as going from ’warning of a potential slowdown’ to ’signaling an economic contraction.’”

Again, the timing is hard, but it can happen fast. Well into 2008, the economy was already in recession, but we realized it only later. By October, there was no doubt.

Let’s hope 2019 is different.

The Great Reset: The Collapse of the Biggest Bubble in History

 New York Times best-seller and renowned financial expert John Mauldin predicts an unprecedented financial crisis that could trigger in the next five years. Most investors seem completely unaware of the relentless pressure that’s building right now. Learn more here.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Robert Ross

Recession-proof industries are unique.

They sell stuff that people buy no matter what’s happening in the economy—things like electricity, internet access, toilet paper… and now pet care?

That’s right: America is pet obsessed.

Pet ownership is up. Spending on pets is up. In fact, we actually spend more on our pets during a recession.

We’ll dig into the details in a moment… and look at three companies in a niche of this recession-proof industry that can bolster your portfolio.

Most of Us Own Pets

Around 85 million US families own a pet, according to the National Pet Owners Survey. That’s 68% of US households.

This figure has increased around 2% annually since 2011. But spending on those pets has increased almost 7% annually.

Meanwhile, spending on veterinary care is growing especially fast. From 1991 to 2015, it shot from $4.9 billion to $35 billion. For perspective, that’s three times faster than US GDP grew over the same period.

And there’s more…

Pet care spending even grew during the last two recessions: 29% during the 2001 recession and 17% during the 2008–2009 recession.

You can see this in the next chart.

This all points to a solid, recession-proof industry.

It means pet care companies enjoy predictable cash flows and sales growth, even during a recession.

It also means stable share prices for stockholders when they’re looking for it the most.

The “Dog Mom” Generation

There are demographic reasons behind the jump in pets and pet spending.

To start, US household formation is near all-time lows, according to Yardeni Research.

The main reason for this, says the Institute for Family Studies (IFS), is that millennials—born between 1980 and 2000—are marrying later. And they’re turning to pets for companionship.

Millennials make up 25% of the US population. But they own 35% of all pets, making them the largest pet-owning cohort in the country.

Aging baby boomers and empty nesters are also big pet fans.

In 2007, only 34% of adults over age 70 owned pets. But by 2016, the year boomers started turning 70, that figure had jumped to 41%.

As I write, fewer than half of the country’s 75 million baby boomers have reached their 70s. So the “dog mom” generation still has plenty of room to grow.

And these folks are spending a lot on their pets.

The Fastest Growing Area in Pet Care

Dog owners spend over $1,000 a year on Fido, on average. So companies that cater to these “dog moms” should continue to thrive.

Overall, spending on pets in the US has gone up every year since 1994. And it’s grown 4.6% annually over the last 10 years—or three-times faster than overall consumer spending.

This is good news for pet care companies. And it makes sense that they’ve done well, even during the last two recessions.

Pets are “part of the family” now. Their owners skimp on other things before downgrading to cheaper pet food or cutting back on supplies.

This is especially true for the $15 billion pet medication industry. Sure, you might skip your regular dog grooming appointment during a recession, but you’re not going skip your pet’s medication.

The booming pet medication market is proof positive of that. Pet medication sales are growing twice as fast as overall pet spending.

The pet medication market will be the highest growth area of the pet care industry for the next decade, reports market research firm Packaged Facts. It expects new products for flea and tick prevention as well as itch relief to drive sales.

And we can get a slice of that…

How to Profit from the Pet Health Market

Recession is probably not imminent. But it’s coming sooner rather than later.

That’s why my focus is recession-proof dividend-paying stocks right now. It will help you add safety and stability to your portfolio and prepare for this recession.

The pet health market is one way to do that.

One of my favorite pet health companies is PetMed Express Inc. (PETS). PetMed is a leading, nationwide pet pharmacy. The company markets over 3,000 prescription and non-prescription medications for dogs and cats directly to consumers.

PETS pays a hefty 6.7% dividend yield. It also has a low payout ratio, which is critical to dividend stocks. Shares have struggled a bit this year, but that also means they’re attractively priced right now—and a good way to take advantage of the growing pet health market.

Next on my list is Zoetis Inc. (ZTS). Zoetis used to be the animal health unit of Pfizer. The company is the largest manufacturer of anti-infectives, vaccines, and other animal health products in the world.

ZTS pays a small 0.6% dividend yield. However, with a 19% payout ratio, there’s plenty of room for the company to increase its dividend payout.

Lastly, we have Pets at Home Group PLC (PAHGF). The company operates a network of stores, pet services, and veterinary services in the United Kingdom.

The company pays a high 4.2% dividend yield. At 125%, the payout ratio is higher than I would like. But the company has very low debt and strong free cash flow. So it isn’t likely to cut the dividend, despite the high payout ratio.

Remember, this recession probably isn’t coming tomorrow. But it’s still important to buoy your portfolio now.

You want to buy recession-proof companies when you can, not when you need to. And now is the perfect time to add some dividend-paying pet health companies to your portfolio.

The Sin Stock Anomaly: Collect Big, Safe Profits with These 3 Hated Stocks

My brand-new special report tells you everything about profiting from “sin stocks” (gambling, tobacco, and alcohol). These stocks are much safer and do twice as well as other stocks simply because most investors try to avoid them. Claim your free copy.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Jared Dillian

I’m bouncing off of Kashana Cauley’s mini-rant in GQ about Suze Orman and the personal finance “industry” in general. The key paragraph here:

This past weekend, CNBC reminded us of Orman’s distaste for coffee: “If you waste money on coffee, it’s like ‘peeing one million down the drain.’” Man, personal finance experts do love shaming people for buying coffee. And avocado toast. If only we’d just stop paying for haircuts—as USA Today recently recommended—the dollars we’d save would also destroy our crushing student debt and sink the effects of years of wage stagnation, income inequality, and de-unionization with it, allowing us to buy those houses we’re too broke to buy right now five minutes before we kick the bucket. And we’d also end up with completely professional, hacked-off-ourselves hair.

GQ leans a bit left so I will ignore the unionization comment. But these are legitimate points. 

Personal finance experts often like to preach austerity. It is a little disingenuous for a rich person to preach austerity—even if that person legitimately got rich through austerity. Cutting back on coffee, food, and haircuts is ludicrous.

And it is also true that the economy has changed. Stuff costs more (even if it doesn’t show up in the inflation statistics) and wages have pretty much stayed put. The student loan problem is intractable, and health care expenses can easily bankrupt you.

But asking people to give up coffee is dumb.

I have some answers.

Not Everyone Can Be Rich

The popular finance literature seems to imply that everyone can be a millionaire if you’re enough of a saver.

This approach makes people have an unhealthy relationship with money. Under this framework, money is to be hoarded, and not shared or enjoyed. Not good.

A better goal is to be free from financial stress. That will involve some austerity, for sure, but you don’t need to give up coffee.

I’m not saying you can have it all—because you can’t. There are tradeoffs. You can have coffee, toast, and haircuts, but with a slightly smaller retirement. And if that’s what makes you happy, then great.

There is a lot of focus on becoming a millionaire. Being a millionaire will not solve all your problems. It didn’t solve mine. Some people become millionaires and still aren’t happy. So the goal isn’t to be a millionaire—the goal is to be happy.

Are You Happy?

Take a quiz.

Let’s do a quick 10-question quiz to see if you are happy with your financial situation and whether you have a healthy relationship with money.

  1. Do I have enough cash on hand to cover any emergencies?
  1. Do I have enough for a reasonable standard of living in retirement?
  1. Can I easily afford small luxuries?
  1. Can I give 2% of my income to charity (excluding church) without trepidation?
  1. Is my marriage free from fights over money?
  1. Do my friends think I am a generous person?
  1. Do I wear clothes I want to wear?
  1. Do I derive pleasure from using the money I earn to buy material things?
  1. Am I debt-free, or close to it?
  1. Do I invest in tax-advantaged retirement accounts to the best of my ability?

I could actually go on, but you get the picture. If you can answer “yes” to most or all of these questions, then money is your friend. It works for you—you don’t work for money.

This is a much better yardstick of success than being a millionaire.

The correlation between money and happiness is weaker than you might assume. More money generally makes people happy.

The research shows that for most people, happiness tapers off once people start making “enough” money. I have known some unhappy rich people. I have known some deliriously happy poor people.

I can tell you what makes people miserable…

Debt

And this is where the personal finance experts like me come into play. When people get themselves in trouble, it is always with debt.

Walking into a car dealership is one of the most dangerous things you can do. Unless you understand how debt works, and are assertive enough to say no, you are going to walk out of there with more car than you need, and lots and lots of crippling debt.

Car salesmen are responsible for spreading a lot of misery in this world.

The bank does it, too—even after the financial crisis. If you go to a bank to get pre-approved for a loan, they calculate the size of the loan based on the payment being 40% of your income. And then you go house-shopping from there, for the biggest house you can afford.

THIS is the key to personal finance. Not skipping coffee and toast, but smaller houses and cheaper cars.

People have a tough time giving up small luxuries, but can easily give up big luxuries. Not really sure why that is, but it’s human nature.

Instead of talking about the million dollars you’ll save by not drinking coffee, let’s talk about the million dollars you’ll save by getting a $10,000 car instead of a $40,000 car, and a $200,000 house instead of a $300,000 house. Those interest payments add up.

At least if you are drinking coffee, you are enjoying it. Nobody derives any enjoyment out of paying interest. It is completely unproductive.

Yes, the personal finance industry is a scam. Because it misunderstands human nature. Sure, money makes people happy—but mostly because it eliminates stress. All people want is not to worry about it. THAT is something personal finance folks can help with.

Free Report: 5 Key ETF Trading Strategies Every Investor Should Know About

From Jared Dillian, former head of ETF trading at Lehman Brothers and renowned contrarian analyst, comes this exclusive special report. If you’re invested in ETFs, or thinking about taking the plunge into the investment vehicle everyone’s talking about, then this report is a clever—and necessary—first step. Get it now.

Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

By Robert Ross

Unemployment is the lowest it’s been in 50 years.

That means most people who want to work can find a job. It also means people are making more money and buying more stuff.

All good. More people working is always positive. But a low unemployment rate is a double-edged sword.

See, the unemployment rate is cyclical. It’s always moving up or down. And at this point—3.6%—there’s almost no room for it to drop more.

That’s where the trouble starts: When the unemployment rate bottoms out, like it’s doing now, it means the economy has peaked. And a recession is probably coming…

We’ve Been Here Before

Notice that every time the unemployment rate hits a low, a recession (highlighted in gray) soon follows:


Source: Federal Reserve Bank of St. Louis

It doesn’t come immediately, though.

Over the past 70 years, a recession has started an average of five months after the unemployment rate bottomed.


Source: Federal Reserve Bank of St. Louis

Also, remember that the unemployment rate lags behind the actual economy. That means it rises and falls after major shifts in the economy, not before.

That makes sense when you think about it. People don’t often lay off employees the first day business starts to slow. There’s a lag.

So the unemployment rate won’t start rising until the US has already fallen into a recession.

More Signs Flashing Red

A bottoming unemployment rate isn’t the only sign that the economy has peaked.

Like the unemployment rate bottoming, the inverted yield curve has preceded every single recession over the past 50 years.

Keep in mind, neither of these indicators means a recession is imminent. And they don’t tell us how severe the recession will be. But it’s certainly coming.

So is the market downturn.

Remember, we’re at the tail-end of the longest bull market in history. So a major pullback is not out of the question. And, since stocks fall an average of 32% in a bear market, you want to start preparing your portfolio now.

That means adding recession-proof stocks and other assets that will rise when the broader stock market falls.

This Is How You Prepare for a Recession

Dividend-paying stocks—especially in sectors like consumer staples, utilities, and defense—are some of the best ways to buoy your portfolio as we head into this recession.

Consumer staples are a great refuge when the economy hits the skids. These businesses sell things like toilet paper, laundry detergent, and dog food—things people buy no matter what’s happening in the economy.

Right now, my favorite way to invest in consumer staples is the Vanguard Consumer Staples ETF (VDC). It pays a safe and stable 2.7% dividend yield.

Utilities, of course, are about as recession-proof as it gets. People pay their power bills even when the economy tanks. So these businesses are very stable.

My top utility pick right now is the Fidelity MSCI Utilities ETF (FUTY). It pays a 2.9% dividend yield. That’s 50% higher than the yield on one-year Treasury bills.

Then there’s the defense sector, which is one of my favorite recession-proof sectors. In fact, US defense spending usually goes up during a recession.

The iShares US Aerospace & Defense ETF (ITA), which pays a 1.1% dividend yield, is a good way to invest broadly in this sector.

The Sin Stock Anomaly: Collect Big, Safe Profits with These 3 Hated Stocks

My brand-new special report tells you everything about profiting from “sin stocks” (gambling, tobacco, and alcohol). These stocks are much safer and do twice as well as other stocks simply because most investors try to avoid them. Claim your free copy.

Read Full Article

Read for later

Articles marked as Favorite are saved for later viewing.
close
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

Separate tags by commas
To access this feature, please upgrade your account.
Start your free month
Free Preview