Every week, our Money and Markets team of investment analysts sends you a tremendous wealth of new research ideas that are spot-on timely and often prescient in their vision of upcoming events. So unless you have fully digested each of the twice-daily issues we sent you since Monday morning, I’m afraid you did miss all — or most — of it.
No worries. Here’s a compendium with two goals in mind: First, to give you a second chance to take advantage of this material, and second to illustrate my point about how valuable it truly is.
The week begins with Larry Edelson, who, to our knowledge, is the world’s only investment analyst who has picked nearly every major turn gold in the last two decades.
Moreover, Larry is the only one who warned, in detail and well ahead of time, about the rising tide of global conflicts and their impact on financial markets.
Case in point: Most investors would think that spreading world conflict might drive U.S. stock prices sharply lower, and sometimes they do. But Larry predicted the opposite — that wars would drive overseas investors to the relative safety of U.S. stocks, precisely what we’ve witnessed in recent months. Here’s Larry’s latest update, released this past Monday …
War Drums Beating Ever Louder; Consequences …
by Larry Edelson
Nearly everywhere you turn, geopolitical unrest is exploding off the charts, threatening to destroy the portfolios of almost all investors, catching the majority of them on the wrong side of the markets.
Just consider …
Israel and Gaza, in a war that could easily spread throughout the entire Middle East.
Malaysian Airlines Flight 17, likely brought down by a surface-to-air missile shot by pro-Russian separatists in Ukraine’s bloody civil war.
Vladimir Putin, bullying his way through Eastern Europe and now even attempting to reopen a Russian base in Cuba.
ISIS, the Islamic State of Iraq and Syria, known for its harsh Wahhabist interpretation of Islam, and brutal violence directed at Shia Muslims and Christians in particular. Terrorizing the Middle East, killing thousands.
Ukraine’s civil war, thousands dead.
Syria’s civil war, 170,000 now dead.
Boko Haram, murdering and kidnapping hundreds of innocent people, crusading to create still another Islamic state.
All of Africa, where there are now fully 24 countries engaged in wars, involving 146 different militias-guerrillas, separatist and anarchic groups.
Asia, where 15 countries involving 129 different radical and separatist groups are waging wars and uprisings.
Europe, where nine countries are under siege via 70 different militias-guerrillas, separatist groups and anarchic groups.
The Middle East, where eight countries involving 169 different rebel and separatist groups are now engaged in conflict.
The Americas, where five countries are either at war or experiencing massive domestic unrest, involving 25 different rebel and separatist groups and drug cartels.
An uprising coming to America will cause gold to soar to more than $5,000 an ounce over the next few years.
And these are just the “official” wars. They do not include other hot spots around the world that are almost certain to lead to either civil or international war. Chief among those:
China versus Japan, Indonesia, Vietnam, the Philippines, Malaysia and Brunei … over the Spratly and Senkaku Islands, the East and South China Seas.
Europe, nearly all of it, where recent elections have seen substantial gains for parties ranging from the populist to the neo-Nazi groups:
Where France’s right-wing Marine Le Pen’s Front National group topped a nationwide poll for the first time in its history …
And where a backlash in many struggling euro-zone nations decimated by unemployment and austerity measures catapulted parties like Greece’s neo-Nazi Golden Dawn to the forefront, winning enough votes to send a representative to Brussels for the first time.
As I’ve also stated before, you may think all these conflicts are unrelated … or the result of religious extremists … or that they have no impact on you.
But mark my words: Look closely, as I have done, at all of the above conflicts — whether they are religiously inspired or not — and you will see two common threads:
1. Private sector groups rising up against authoritarian, unjust and corrupt governments.
2. Private-sector groups rising up against governments that want to increase taxes or even confiscate wealth while, at the same time, levying austerity measures on its people to slash previously promised benefits.
In lesser developed countries, it’s the result of government corruption, imperialistic actions taken by developed countries, pillaging of natural resources, and more. Yes, they are shrouded in religious extremism …
But when distilled down to the truth, the forces driving them are no different than the forces that are driving the civil and international unrest you are now seeing in developed countries.
It’s merely a matter of degree. Yet an impartial and objective study of the forces that are driving the war cycles higher — wherever in the world they are playing themselves out …
Can all be distilled down to a great battle between the public and the private sectors …
And a battle that will soon come to main street USA.
How so? Naturally, it will take a different form, and allege different reasons when it strikes Main Street USA.
But its essence will be the same: A backlash of the private sector against the public sector … against loss of privacy … against rising taxation … against Washington’s fiscal irresponsibility … against a bankrupt Social Security system …
Against an ineptly run Veterans Affairs Department … against student loans that Washington underwrote and that are now bankrupting scores of college and post graduate students …
Against an insane Internal Revenue Gestapo Service that wants to, and will, monitor everything you do, every penny you save, every penny you spend, every item you buy — all in the name of making sure you are paying every penny of tax you should.
Not to mention the Internal Revenue Service’s massive bullying of other countries, which has now forced some 77,000 foreign financial institutions to cow-tow to Washington and report the financial activities of every American with an overseas financial account.
An uprising coming to America? You bet it is. And I suspect it will be one that will make the Vietnam era protests and our own version of Tiananmen Square, the Kent State shootings of May 4, 1970, look like a walk in the park.
And the consequences for investors and the financial markets will be simply astounding:
They will cause gold to soar to more than $5,000 an ounce over the next few years. Silver to more than $125.
Oil to soar to $200 a barrel and then even higher.
Mining shares, perhaps the most undervalued sector of all, to at least QUINTUPLE.
Food prices, now in the final throes of their bear markets, to suddenly reverse and explode higher.
And the U.S. stock market? Other than a healthy pullback now and then, it will ironically explode higher …
[Editor's note: Larry has a time-sensitive report for you, Outrageous Opportunity: How to Position Yourself to Profit in the Bull Market of a Lifetime. This $79 value is yours free. Click here to learn how to get your copy now.]
As not a soul will want to touch U.S. or European sovereign debt and as capital from every corner of the globe crowds into U.S. equities as it becomes the last beacon of hope for capitalism …
The last, confiscatory-free place to invest your capital and get a decent return to boot.
As I have said for over two years now, you have to think differently to financially survive today.
The war cycles — the rhythms of historical, cyclical mass human behavior that are almost as predictable as the seasons of the year — are here now …
And they are ramping up with an intensity that even I underestimated.
The Fed’s Shaky Record on Valuations
by Jon D. Markman
Jon Markman’s record of spotting current and future trends — particularly in terms of their impact on the technology sector — is unbeatable. That’s why he has won the most prestigous awards in business journalism. And that’s also why he was chosen by Bill Gates & Co. to head up Microsoft’s MSN Money. Today, he edits our New Technology Superstars service and contributes regularly to our Money and Markets columns. Here’s his report published this Tuesday …
The Fed seems to be the one and only dynamic that has had any lasting impact on the market over the last two years. Last year’s taper tantrum, for instance, was the last time we had a major bout of cross-market volatility.
Indeed, it’s no accident that the areas of the market under selling pressure this week were ones that Yellen — in a surprising departure from central bank custom — fingered as overvalued in her testimony to Congress last week.
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While Yellen has brushed aside complaints that six years of ZIRP, or “zero interest rate policy,” has fueled another broad asset price bubble, she as well as other Fed officials have been warning of specific areas of growth and extended valuations. Dallas Federal Reserve President Richard Fisher warned that investors, in some cases, were strapping on Fed-provided “beer goggles” that made risky investments look better and safer than they really were.
Investors were taking the hint. The Russell 2000 small cap index is struggling to maintain its 200-day moving average, a level that aside from a short-lived test back in March and April, has been held since 2012. Small, expensive health-care stocks, represented by the iShares Biotechnology (IBB) ETF, are testing their 50-day moving average for the first time in quite a while. Shares of popular but earnings-challenged social media companies like Twitter (TWTR) and Pandora (P) are under pressure.
And high-yield corporate junk bonds, as represented by the iShares High Yield Corporate Bond Fund (HYG) are suffering their most dramatic pullback since the summer of 2013.
Yet is this a smart approach by investors? Maybe not, as the Fed has a terrible track record when it comes to predicting asset values.
You may recall that former Fed chairmen Ben Bernanke and Alan Greenspan both tried to dismiss housing bubble warnings back in 2005 and were ultimately proven wrong. Bernanke tried to justify the price rises as reflective of “strong economic fundamentals,” while Greenspan, for his part, quipped that while he saw no national bubble in home prices, there could be areas of “froth” in local markets that could suffer price declines.
And one of the most famous declarations by Greenspan on the stock valuation occurred on Dec. 5, 1996, when he said: “Sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”
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While the colorful comment about “irrational exuberance” caused a stir at first, the Nasdaq 100 went on from that date to rise another 450 percent to its top in March 2000, led by Qualcomm (QCOM) with a 3,500 percent gain, hot biotechs like Celgene (CELG) that rose 1,400 percent and sizzling Internet stocks like Yahoo! (YHOO) that jumped 12,500 percent. To be sure, ultimately the market tumbled in 2000-01, but a scorching three-year rally first is one you can’t afford to miss.
The bottom line is that central bankers want to be known as paragons of sobriety when it comes to other organizations’ domains, such as the stock market, but reject any criticism that investors may make about their own work in setting monetary policy.
In short, keep an ear open for Fed comments on the market because they are a major contributor to sentiment, but remember they are just a part of the game — not the whole game. If Greenspan’s three-year comeuppance is any indication, Yellen ain’t seen nothin’ yet in terms of high valuations.
Gasoline Costs Explode! How YOU Can Fight Back
by Mike Larson
Mike Larson is well known by investors and financial journalists as one of the first analysts to warn about the housing bust that began in 2007, the debt crisis that began in 2008, and virtually all of the specific consequences, which continue to this very day.
What most investors do not yet know, however, is the fact that Mike also has many years of expertise following gas, oil and energy markets. His Tuesday afternoon update, below, reflects just one aspect of that experience.
Don’t look now … but the price of gasoline is EXPLODING. Gas prices surged 3.3 percent last month alone, according to the just-released Consumer Price Index. That was the single-biggest rise since June 2013, and more than four times the increase in May.
Overall inflation is now running at 2.1 percent, the most in 20 months. And that’s just the official CPI reading, which you and I both know understates the real inflation we’re experiencing in our lives every day.
The Federal Reserve’s apologists will say, “Yeah, but crude oil prices fell in early July. So these numbers will come right back down.”
But the huge flare-ups in the Ukraine, in the Middle East and elsewhere are already working to reverse that move. Crude oil rose right back to $105 a barrel earlier today, close to its highest level since last September.
Gasoline futures prices are also well above the lows they set in late 2013 — some 16 percent higher, in fact. It won’t take much at all to push gas prices from the current national average of around $3.67 per gallon to $4 and beyond.
Consumer prices, including those at the pump, are rising. And given the many tension points around the globe, the increases could continue and even intensify.
Now, there are lots of ways you can fight back against rising gas and energy prices. Drive a more fuel-efficient car. Carpool with co-workers. Make sure your tires are properly inflated. Consider diesel or hybrid cars rather than traditional gasoline models.
But as an investor, there’s a much better way to go. Buy shares of the companies that are making money hand over fist from the energy boom!
I’m not just talking about the big energy producers, the kinds of names that have driven the value of the Energy Select Sector SPDR Fund (XLE) to all-time highs above $100 a share. I’m talking about smaller- and mid-capitalization stocks that are raking in the dough from producing, transporting, storing, and processing oil, natural gas, and liquids right here in the U.S.
“There are lots of ways you can fight back against rising gas and energy prices.”
We’re in the midst of an unprecedented boom in domestic energy here, folks, the kind that is literally creating fortunes. Heck, one company that’s helping producers ship oil to market by rail is up a whopping 106 percent since I first recommended it to my Safe Money Report subscribers. Another energy transportation firm has generated total returns of 34 percent in just eight months.
I’m very excited about those kinds of returns, and I am re-doubling my efforts to bring you details on these kinds of winning energy investments. So do stay tuned. Because if I’m right, the kind of gasoline and energy inflation we’ve seen so far in the CPI is just the start.
What about you? What do you think is driving the increase in gasoline and oil prices? What investment strategies make the most sense to you in this environment? Share your insights on ways to profit from the domestic energy boom at the Money and Markets comments section here.
Alternatives to Biotech
by Bill Hall
Bill Hall is the consummate money manager, responsible for the funds of some of America’s wealthiest families. His approach to investing also fits my own family’s philosophy like a glove, with steady, non-speculative, safety-first investments that continue to grow through thick and thin. He warns of a possible credit crunch on the horizon. But that doesn’t stop him from finding investment opportunities for right now …
With the S&P 500 health sector having gained 12 percent so far this year and about 25 percent over the past year, I think it’s worth looking at some of the more established and high-quality companies in the industry for investors looking to participate in the health-care boom without taking on a lot of the risk associated with the high flyers.
If biotech companies are too risky, what’s the everyday investor supposed to do?
In last week’s Money and Markets column, I suggested Becton Dickenson (BDX) as a high-quality core portfolio holding. Becton Dickinson is the world’s largest manufacturer and distributor of medical surgical products, such as needles and syringes. The company also manufactures a wide array of diagnostic instruments and reagents. International revenue accounts for 58 percent of the company’s business.
Another one of my favorite companies in the health-care sector is Medtronic (MDT), whose stock has gained about 16 percent over the past year. Medtronic historically has focused on designing and manufacturing devices to address cardiac care, neurological and spinal conditions, and diabetes.
Medtronic’s strong cash position supports its commitment to consistent dividend growth.
Medtronic has slightly shifted its strategy to focus on partnering more closely with its hospital clients by offering greater breadth of products and services to help hospitals operate more efficiently. The recently announced $42.9 billion acquisition of Dublin-based Covidien, which pairs Medtronic’s diversified product portfolio aimed at a wide range of chronic diseases with Covidien’s breadth of products for acute care in hospitals, will position Medtronic’s as a key partner for hospitals around the world.
The addition of Covidien ramps up the competition between Medtronic and the No. 1 player in medical technology business, Johnson & Johnson (JNJ), putting Medtronic in prime position to challenge Johnson & Johnson at a time when consolidation and leverage over cost-conscious hospitals is a priority.
Medtronic’s stock has pulled back a bit because the Obama administration wants to stop corporate deals like the proposed Medtronic acquisition that could enable the company to save millions in U.S. taxes by shifting its headquarters to Ireland. But I believe the decline in Medtronic’s stock price represents a buying opportunity for price conscious investors.
As with Becton Dickenson, Medtronic’s strong cash position supports its commitment to consistent dividend growth. With a current yield of 1.84 percent and a dividend payout that’s likely to grow in the future, shareholders can expect a solid cash-on-cash return while they wait for the stock to appreciate.
China’s Stock Market Plays Catch-Up
by Mike Burnick
Mike Burnick leads all our Money and Markets editors each week in our exciting Squawk Box conference call. (Click here for the latest edition.) He brings to the team many years of investment advisory experienced and a stellar track record, particularly with global stock markets and ETFs.
It is fashionable to bash China these days. Granted, its stock market has drastically underperformed in recent years: Since 2012 began, the Shanghai Composite Index is down 6.6 percent, compared with a 57.2 percent rise in the S&P 500 Index over the same period.
That’s why it’s not surprising to find that plenty of folks still take a cautious view about investing in China. Fears of an over-inflated housing bubble and imminent credit crunch abound.
You just can’t find many bulls on Chinese stocks today … and that’s precisely why this market deserves a closer look.
From a true contrarian investor’s perspective, it doesn’t get much better than this, because fears of an economic meltdown in China appear overblown. Peel back the top layer of the inefficient, old state-owned enterprises, and you’ll find a vibrantly growing domestic economy driven by a unique brand of oriental capitalism.
China’s consumer-oriented service sector has grown at a faster clip than the industrial sector for seven straight quarters.
New political leadership in Beijing at the start of 2013 stressed social reform and rebalancing China’s economy away from industrial-led export growth, in favor of more organic domestic consumption growth. And this crucial policy change is already yielding very favorable results.
Just released second-quarter data shows growth in China accelerating again, with gross domestic product growth of 7.5 percent, after a brief slowdown last year. China’s consumer-oriented service sector has grown at a faster clip than the industrial sector for seven straight quarters; expanding 8 percent year over year last quarter, versus 7.4 percent industrial growth.
Greater reliance on consumer goods and services means faster employment growth and higher wages, which in turn promotes rising consumer wealth and spending. Judging from the bullish numbers below, I’d say China’s economic transition is well underway …
* Wage growth has exceeded growth in the broader Chinese economy for the past five quarters. In the first half of this year alone, urban incomes jumped 9.4 percent, compares to 8.5 percent GDP growth.
* China now accounts for 16 percent of worldwide GDP, a share which has doubled in just the past 15 years. And consumption now accounts for more than half of total Chinese economic growth …
* China’s fast-growing consumer class now spends more as a percentage of global GDP than Japan’s, and they’ve pulled dead-even with consumers in all of Europe …
* And these are savvy consumers too. China already has almost three-times more people online as in the U.S. and internet usage is growing 10 percent annually, versus only 2 percent in the U.S. Plus there are nearly four times more mobile phone users in China as in the U.S. already!
In fact, from 2011 to 2013, China contributed more to global consumption growth than any other nation on earth, including the USA.
Still, the critics contend that much of China’s recent growth has been squandered in misguided capital spending. But nothing could be further from the truth.
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In fact, the chart above shows that in historical terms, China’s expansion is following roughly the same trend as in the U.S. — but China is only on par with U.S. levels when Neil Armstrong first set foot on the moon 45 years ago. That means there are still plenty more railroads, airports, pipelines, factories, businesses and shopping malls to be built!
China has plenty of room for capital investment and growth for decades to come. And Beijing is directing capital spending toward more productive industries including: technology, clean energy and consumer services.
In spite of this remarkable transition from an export-led economy to internal consumption growth, investors remain skeptical about China’s investment prospects. And I can understand why: its stock market has lagged far behind, but that’s beginning to change.
It appears the tide may finally be turning in favor of Chinese stocks, which also happens to be one of the world’s most undervalued markets right now.
Over the past three months, the Hang Seng China Enterprises Index of Hong Kong listed Chinese mainland companies has gained 7.1 percent. By contrast, the Dow Jones Industrials gained just 3.8 percent since then; Chinese stocks are quietly playing catch-up! Plus, on a relative valuation basis stocks in China are an absolute bargain compared to the U.S. and most other global markets.
The China Enterprises Index has a trailing P/E ratio of just 7.8 times earnings right now, and a dividend yield of 4.1 percent.
U.S. stocks by contrast are trading at 18.4 times trailing profits and 16.6 times this year’s hoped-for earnings and yield just 1.9 percent.
Bottom line: Investors aren’t paying as much attention to China’s stock market after several years of underperformance. As a result, Chinese shares are incredibly inexpensive right now; on sale at less than half the valuation of U.S. stocks and offering twice the dividend yield. For my money, select stocks in China are worth a much closer look.
A Perfect Example of Why I do
NOT Like Investing in Housing Stocks!
by Mike Larson
Mike Larson is not only an astute analyst but also a very prolific writer. In addition to a daily afternoon update, he contributes an in-depth Friday morning column each week. Here’s yesterday’s …
In my last weekly column, I talked about one of my favorite sectors to invest in — aerospace. And I followed that up with details on another of my favorite sectors earlier this week — domestic energy.
But you know where I generally do not want to invest? In the U.S. housing industry and related companies. Just look at the awful news this week out of one of my least-favorite companies in the sector, appliance-maker Whirlpool (WHR).
On Wednesday, the appliance maker said it earned just $179 million, or $2.25 a share, in the second quarter. That was down sharply from $198 million, or $2.44 a share, in the year-earlier period. If you strip out unusual items, you get $2.62 in profit per share — far below the average forecast of $2.86.
Not only that, but revenue sank more than 1 percent to $4.68 billion from $4.75 billion a year earlier. That also missed forecasts of $4.84 billion. And to top it all off, Whirlpool slashed its full-year ongoing EPS forecast to a range of $11.50 to $12. Wall Street was looking for $12.05.
Whirlpool said the factors holding results back included “lower unit volumes, higher material costs, foreign currency and increased investments in marketing, technology and products.” That’s quite a laundry list of problems.
Costs tied to recent acquisitions in China and Europe will hurt results as well. The company just said it would buy two-thirds of a troubled European appliance maker Indesit, a strategy that looks like it was conceived in desperation not for any logical reason.
While Whirlpool shares had a slight dead cat bounce after the results, I believe it’s in for rough sledding over time. And the thing is, Whirlpool is far from alone!
Shares of the biggest homebuilder in the U.S., D.R. Horton (DHI), tanked more than 11 percent yesterday after revenue plunged the most in five years. Plus, new home sales overall fell 8.1 percent in June — worse than even the most pessimistic estimate. The supply of homes for sale rose to the highest in almost four years.
Is it any wonder, then, that most stocks in the sector have been lagging or marking time all year? The SPDR S&P Homebuilders ETF (XHB) is trading for around $31 — unchanged since last May.
Frankly, you could have been investing in some of the stocks I’ve been highlighting in the Safe Money Report and done much better. To get on board, if you aren’t already, just click here or call us at 800-291-8565.
Plus, much More
Martin here again, with one final word: Due to length, it was not possible to include ALL of the research and ideas we sent you this week; in fact, this compendium represents less than HALF of it.
Stand by for more, and do your best not to miss any of our twice-daily issues.
Good luck and God bless!
Martin
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