Month: July 2013

By MoneyMorning.com.au

This year marks the 100th event of the Tour de France. For Australians it means late nights, bleary-eyed mornings and the optimism Cadel Evans can once again reign supreme. But no other sporting event in the world combines such high levels of technology, health and energy as ‘Le Tour’. Therefore this week’s FutureWatch is a Tour de France Special.

TECHNOLOGY: Whatever You Do, Don’t Call It a Bike

To call a Tour de France (TDF) Racing Bike ‘a bike’ is like calling a Le Mans Racing Car ‘a car’. In all reality a race bike is closer to being a SCUD missile than a bike that you might see on your daily commute to work.

But for simplicity’s sake I’m going to refer to these TDF weapons as bikes. Now you might be wondering at this point what is an introduction about a TDF bike got to do with technology? A lot more than you think.

Let’s have a look at the new time-trial bike in use this year by Team Sky Racing. Last year they used a bike called the Graal, manufactured by a company called Pinarello. This bike helped Bradley Wiggins smash the field in the time trails and contributed to his place on the top step of the podium in Paris.

Pinarello just last month unveiled a new piece of bike technology that has been 12 months in the making. In collaboration with the riders that hope to power to victory in the 100th running of the TDF the new Boldie time-trial bike is a piece of technology perfection.

Source: Pinarello

Here’s some of the length’s Pinarello’s technicians went to in crafting the Boldie. They put every component through a wind tunnel to investigate airflow. Subsequently this year’s bike has a reduced aerodynamic impact by 15% compared to last years’ bike. The brakes are ‘hidden’. Meaning the brakes are also integrated into the carbon fibre frame, keeping the bike very slick.

Add to that the electronic shifter controls integrate into the handles bars. And the battery pack and electronic derailleurs are…you guessed it, built into the frame.

Let’s just touch on something there. We mentioned electronic controllers and shifters…on a bike.

That’s because current racing bikes use wireless, electronic gear shifters. With a ‘mouse-click-like’ touch on the gear selector the e-shifter on the gears instantaneously selects the next gear.

Basically it’s like having ‘flappy paddle’ changers on your sports car. It’s semi-automatic gear selection on a bike with microchips and sensors galore.

Current TDF bikes cost upwards of $11,500 for the daily bike and over $16,000 for time-trial bike. You can see these machines are the most technologically advanced bikes ever made.

No matter how much carbon fibre, electronics or money is spent on these bikes they still need leg power to go. Makes you wonder what will happen when the first bionic rider enters the TDF…?

Until then, I look forward to the next three weeks of bleary eyed mornings.

HEALTH: Check Your DNA, You Might Be A TDF Rider Too

Over the years about 10,000 individuals have contested the TDF. Of these just over 6,000 have been able to actually complete it

And there’s good reason the failure rate is about 40%. To finish it you need to be either a cheat (which unfortunately many have been over the years) or a genetic freak.

Each day these athletes burn 6,000 calories. Over the total race, about 126,000 calories. That’s why often you’ll see them down a can of coke on the road, just to keep their calorie intake up. To compare, an average sedate person will burn about 2000 calories a day.

It’s a testament to genetic predisposition and elite level training regimes that these guys are even capable of completing this gruelling race.

Physiologically every organ within their bodies must be in top condition, coordinated and working harder and longer than any other activity on earth.

The average TDF rider will have a heart rate over half as low as a typical person, lung capacity at least twice as large and a heart often up to 40% bigger than yours or ours.

Genetically these athletes are gifted, but hours of day after day training will also get them to ‘tour’ levels of elitism. But don’t neglect the powers of the mind also.

One of the great voices and most knowledgeable people in the world of cycling, Phil Ligget, says riders of ‘Le Tour’ need,

‘Recuperative powers and the ability to suffer more than anyone else. When you and I might say, ‘This is ridiculous, I’m going home’, these guys just close their eyes and screw their face and try a bit harder,‘

Thanks to a combination of great technology, great training regimes and some gifted genetics these guys drag themselves through the mountain passes of France every year.

It highlights the benefit of a genetic test at an early age. Maybe with the right mix of DNA your kids might end up as elite athletes like the TDF riders we see today.

ENERGY:  Is the Answer for Renewable Energy Cycling up the Alpe d’Huez?

While we’re on our TDF special we should also consider the huge energy potential of the field each year.

It’d be a good idea if a smart scientist or researcher could come up with a way to harness the energy that the TDF riders generate each tour.

Because one of the world’s best sources of renewable energy is the pedal power that comes from the genetically gifted legs of the 198 riders that contest the race.

At peak performance a TDF rider going uphill can produce about 400 to 500 watts. Riding in the peloton, about 250 watts.

Now let’s say they maintain that power for an hour. If we add it all up and average it out, they average about 380 watts over an hour, so about 0.38 kilowatts per hour

In 2012 Bradley Wiggins spent 87 hours 34 minutes and 37 seconds in the saddle over the whole length of the tour. He won it with that time.

If you multiply that out by the average kilowatt hours above, Wiggins generated about 33.25 kW over his tour. If every rider (198 of them) generated the same energy, that’s a whopping 6,533 kW for the entire field of the TDF.

To put that into perspective, 7,449 kW would be enough to roughly power 140 homes for a month, or 11 homes for a year.

The other thought is that the TDF isn’t the only professional tour race in the year. There’s also the Giro d’Italia and the Vuelta a Espana, which both also go for multiple weeks. Plus all the other week long or weekend long bike races around the world.

All combined, thats a lot of energy gone to waste. If an inventor could find a way to harness that power, we’d have another great renewable energy source.

If you add all the professional bike races around the world together and you’d probably have enough power to keep a whole city running every year.

Regards,

Sam Volkering
Technology Analyst

From the Archives…

Don’t Make Investing a Chore… Invest in an Innovative Business
14-06-2013 – Kris Sayce

The Technology Revolution Begins in Four Days…
13-06-2013 – Kris Sayce

Zero G for the Australian Dollar is a Shot in the Arm for Miners
12-06-2013 – Dr Alex Cowie

There’s More to Technology Than Facebook and Spying
11-06-2013 – Sam Volkering

Four Great Australian Technological Achievements
10-06-2013 – Sam Volkering

By The Sizemore Letter

The second quarter gave us quite the thrill.  I’m calling it “The Great Bernanke Scare of 2013.”

After a monster first-quarter rally in income-paying securities, comments from the Fed Chairman that he might—just might—taper quantitative easing by early next year led to the worst correction in bonds, MLPs, REITs and other “income focused” investments in nearly two years.

Interestingly, “high beta” sectors such as emerging markets and “periphery” European markets also took a beating.  It was something of a barbell correction in which both the most conservative and the most risky sectors got hit the hardest, while what you might think of as “mainstream stocks” held up relatively well.

Emerging markets were affected by more than just Fed fears, however.  Unrest in Turkey caused a collapse in the Turkish stock market—which had previously been one of the best-performing markets in the world and a source of relative return for the Sizemore Capital Tactical ETF Portfolio.

Slower growth in China and fears of a Chinese banking crisis also helped to push emerging market stocks sharply lower.

Where do we go from here?

I stand by my original view that the bond market overreacted to Bernanke’s comments and did so by a wide margin. I expect the ten-year Treasury yield, which at time of writing had just shot above 2.7% on a positive jobs report release, to settle into a fairly long-term range of 1.9% to 2.3%—a view that bond market legends Bill Gross and Jeffrey Gundlach would seem to share given their recent bullish  comments on the sector.

The income sectors that got hit the hardest—such as REITs and MLPs—are off their recent lows, and I expect investors to return to these sectors in the second half.  In the Dividend Growth Portfolio, Sizemore Capital took advantage of the selloff to add to our long-term positions in National Retail Properties ($NNN) and Realty Income ($O) and to initiate new positions in competing retail retails Cole Properties ($COLE) and American Realty Capital Properties ($ACRP).

Each of these meets my basic criteria as a dividend growth investment.  They pay a relatively high current yield, and their property portfolios are structured to make an increasing cash payout very likely over time.  They also fall into a “sweet spot” in that their portfolios are defensive yet also offer decent protection in the event of higher-than-expected inflation.

I additionally made multiple changes to the Tactical ETF Portfolio.  I initiated a short position in Japanese government debt via the Powershares DB 3x Inver Japanese Gov Bond ETN ($JGBD). 

I also shifted the equity portion of the portfolio away from the “mega caps” in the WisdomTree Large Cap Dividend ETF ($DLN) to a more growth-oriented alternative: the Cambria Shareholder Yield ETF ($SYLD).  And consistent with my view that more cyclical sectors will lead in the second half, I initiated a position in the Technology Select Sector SPDR ($XLK).

In both the Dividend Growth Portfolio and the Sizemore Investment Letter Portfolio, I sold the position in Silver Bay Realty Trust ($SBY), which has failed to meet expectations.  I remain wildly bullish about the prospects for the rental housing market, but I fear that a flood of new traded Wall Street alternatives has created something of a glut in the supply of the stocks themselves (though not of the underlying houses).

Where do we go from here?

After the recent rout in emerging markets, several are beginning to look attractive to me again.  European markets—and particularly periphery markets—also look attractive based on price and investor sentiment.  I consider these fertile areas for investment in the second half.

A NEW series of educational trading lessons from “Visual Guide to Elliott Wave Trading” — Part 1 of 3

By Elliott Wave International

When it comes to improving your wave-based analysis and technical trades, three steps may sound simple enough. Yet if you have any experience trading, you know that nothing about trading is easy.

Senior Analyst Jeffrey Kennedy knows that it takes skill, discipline and courage to execute a successful trade. In the new book he has coauthored with EWI’s Wayne Gorman (now a No.1 Amazon Bestseller), Visual Guide to Elliott Wave Trading, he picks up where Frost and Prechter’s classic textbook Elliott Wave Principle leaves off to give you the perfect blend of traditional textbook analysis and real-world application.

According to Kennedy, there are three key components of a successful trade:

• Analyze the price charts.
• Formulate a trading plan.
• Manage the trade.

In this excerpt (Part 1 of 3), Kennedy examines a high-confidence trade setup in Caterpillar (CAT).

Part One: Analyze the Price Charts

When it comes to trade setups, it doesn’t get much easier than the price chart of CAT from April and May 2011. As you can see in Figure 2.1, prices fell in five waves from 116.55 to 108.39. This wave pattern was significant because impulse waves identify the direction of the larger trend. Thus, this five-wave decline in CAT implied further selling to come that would take prices below 108.39 in either wave (C) or wave (3).

The subsequent rally in CAT that developed in three waves supported this analysis. Countertrend price action typically consists of three waves, so I knew to expect another move down in CAT. Moreover, the three-wave advance in CAT traveled to 112.47 to retrace 50 percent of the previous sell-off. That 50 percent is a common retracement for corrective waves. Also nearby was 112.84, the price level at which wave C equaled a .618 multiple of wave A, which is a common Fibonacci relationship between waves C and A of corrective wave patterns.

The only question at this point was whether the move up from 108.39 should be labeled as wave (B) or wave (2). From a short-term trading perspective, this question was academic because, either way, the trade objective was a price move just under 108.39. A final observation about the corrective rally: The slope of wave C in this case was shallower than the slope of wave A. A shallow wave C slope, which demonstrates a decrease in momentum, is a harbinger that the larger trend is resuming. These shallower slopes within zigzags are so common that they are almost a qualifying characteristic of the pattern.

By applying the most basic Elliott wave analysis to the price chart of CAT, I could see five waves down and three waves up into Fibonacci and structural resistance at 112.47-112.84. That meant that odds strongly favored a sell-off below 108.39 from near current levels. So, the question at that point was how best to capitalize on this information.

Stay tuned for parts 2 and 3 of this lesson.

The Ultimate Wave Trading Crash CoursePut yourself on the fast track to applying the Elliott Wave Principle successfully with a FREE one-week primer: The Ultimate Wave Trading Crash Course. Learn the basics with 5 FREE trading lessons from EWI Trading Instructor and Senior Analyst Jeffrey Kennedy — including insightful excerpts from his Amazon No. 1 Bestseller, Visual Guide to Elliott Wave Trading. Learn more and start your crash course now >>

By WallStreetDaily.com

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Chief Investment Strategist, Louis Basenese, said recently that “small business owners account for a large portion of pickup sales, particularly Ford (F) F-Series trucks. That means, by gauging sales of F-Series trucks, we can track the health of the economy.”

Well, the economy must be doing just fine…

“Ford sold a total of 72,000 trucks in May, which brings the year-to-date total up to almost 300,000. That’s a 21.5% increase over last year – and the highest total since the recession hit,” says Louis.

Indeed, auto sales continue to increase across the board…

Both Ford and General Motors (GM) posted stronger-than-expected sales in June. GM’s sales were at their highest level for June since 2008. Ford had its best June since 2006.

And although Chrysler’s sales were in line with forecasts, the company still posted its best June total since 2007.

The reason for the latest surge?

So many people held onto their rusted-out jalopies during the recession that they just can’t wait to get a shiny new car any longer…

According to Edmunds.com’s Senior Analyst, Jessica Caldwell, “Cars out there on the road are very old, and we are seeing record levels of vehicle ages that are being traded in to buy new cars. So I think a lot of people can’t wait.”

To top it off, even though rates are increasing, car companies want to keep consumers coming in. So they’re keeping rates low…

“A lot of the rates are subsidized by the auto companies themselves,” says Caldwell. “So even though the interest rates are getting higher, auto companies still want to advertise those low interest rates because that is what is driving them. A lot of people buy on monthly payments, so if you have a low interest rate, monthly payments become a lot friendlier.”

The post Auto Sales Continue to Surge to Pre-Recession Highs appeared first on  | Wall Street Daily.

Article By WallStreetDaily.com

Original Article: Auto Sales Continue to Surge to Pre-Recession Highs

London Gold Market Report
from Adrian Ash
BullionVault
Friday, 5 July 09:00 EST

The DOLLAR PRICE of gold dropped $20 per ounce lunchtime Friday in London, briefly dropping through $1220 per ounce after the release of June’s US non-farm payrolls data.

Non-farm payrolls growth came in at 195,000 against consensus forecasts of 165,000.

 The US jobless rate stayed at 7.6% however, rather than slipping as forecast. But average hourly earnings rose 2.2% annually against the 2.0% analysts predicted.

“With the US economy improving, US interest rates rising and the Dollar no longer perceived to be at risk,” says the latest Commodities Weekly from French investment and bullion bank Natixis, “the need for a safe haven against currency debasement and inflation dissipated.

 “Should the Dollar continue to strengthen, so gold prices will remain under pressure,” says the note, as Western investors continue to sell exchange-traded gold funds.

 ETF gold sales since February now total 572 tonnes, says Natixis – “equivalent to increasing annual gold [mining] production by almost 13%.”

 Chinese gold buyers, in contrast, imported the second-largest volume of bullion on record in May, new data showed Friday.

 Net imports of gold bullion to China through Hong Kong totaled almost 109 tonnes, the Hong Kong Census Bureau said, greater by more than one third from April.

 Over the 1st five months of the year, China’s net gold imports stood at twice the level of 2012.

 Across in India meantime – likely to be overtaken by China this year as the world’s No.1 gold consumer – “It is difficult to sell even 5 kilograms per day as the marriage season is almost over,” said Chennai wholesalers MNC Bullion to Reuters on Friday.

 Fighting both the typical gold summer lull of Chaturmas and new government curbs on imports of gold bullion, India’s major retail chains “are aggressively promoting diamond jewellery” says the newswire, as well as expanding overseas in Singapore and Dubai.

 “Gold has been the traditional form of savings among Indian households for many years,” says B.Venkatesh, founder of financial advisors Navera Consulting, writing in The Hindu.

 “Buying gold gives you a feeling of comfort…Gold is accepted at all times, [giving] you feeling that it is a ‘safe’ asset.”

 European stock markets meantime failed to follow Asian shares higher on Friday, while weaker Eurozone bonds recovered more of the week’s drop.

 Silver prices fell faster than gold, losing some 3.0% for the week after the non-farm payrolls data.

Both gold and silver neared the end of London trade Friday with lowest weekly finish against the Dollar since August 2010.

The US Dollar also rose Friday against the Euro and Sterling after the non-farms jobs data, touching 6 and 17-week highs respectively.

 The European Central Bank and Bank of England had confirmed their record-low interest rates for the foreseeable future on Thursday.

By Friday afternoon in London, both Euro and Sterling gold prices had cut their earlier gains, but were heading for their first weekly gain in six.

“The stronger Dollar is adding to the downward drag in metal prices,” says Standard Bank’s daily note.

 “Even if the NFP data [had come] out below expectations, we would look for rallies in gold and other precious metals to fade.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By www.CentralBankNews.info

By WallStreetDaily.com

We’re not going to let a shortened holiday week keep us from our charts.

Just like every other Friday, we’re serving up a handful of carefully selected graphics to drive home some important investing and economic insights.

After all, a picture is supposed to be worth 1,000 words, right?

We certainly think so. And we’re putting it to the test again, as we feature a trio of snapshots related to the most unexpected commodity rally… the possibility of a summer surge for U.S. stocks… as well as the best (and worst) performing countries in 2013. (The results are shocking!)

Enjoy!

Happy, Happy, Happy… As a Hog!

Gold has fallen and it can’t get up. The not-so-precious metal dropped 14% in June alone. However, not all commodities are getting clobbered.

Take the $12-billion hog futures market, for instance. It can’t be contained.

So far in 2013, hog prices are up 19%. That’s enough to make it the top-performing component in the Dow Jones-UBS Commodity Index, which is actually down 10% on the year.

When a specific commodity defies its benchmark average by such a degree, it makes you wonder what insiders know that the rest of us don’t.

It’s true that all hogs – on Wall Street and the farm – eventually get slaughtered. But right now, “everybody’s happy and making money and having fun,” says Dennis Smith of Archer Financial Services.

Kind of makes you want to bet the farm on the pigs, too, huh?

Unfortunately, no pure-play opportunities exist now that Smithfield Foods (SFD) is on track to be acquired by a Chinese company for $34 per share.

Instead, you’ll have to settle for the iPath Dow Jones-UBS Livestock Total Return Sub-Index ETN (COW). It invests 41.6% of its assets in lean hog futures, with the rest in live cattle futures.

Stock Market Forecast: June Gloom Gives Way to Fireworks in July

A June gloom descended on stocks, just like every other June for the past 50 years.

So what’s in store for July? Fireworks, baby!

As Bespoke Investment Group notes, “July sticks out as the one summer month that has seen strong gains.”

Indeed!

As you can see, the Dow has averaged gains in the month of July over the last 20, 50 and 100 years.

So stock market seasonality points to this bull market lasting even longer. Go ahead and pinch yourself. You’re not dreaming.

U-S-A! U-S-A!

If there’s ever a week to be obnoxiously patriotic, it’s this one.

But aside from celebrating our country’s independence (God bless America!), we can also rejoice over the fact that the U.S. stock market is one of the top performers in the world.

Through the second quarter, U.S. stocks are up 13%.

Only Japanese stocks are faring better, rising 31.6%. (If you followed our words of wisdom here, you should be sharing in this upside.)

Meanwhile, the highly touted BRIC nations (Brazil, Russia, India and China) are all seeing red this year.

My recommendation? Keep buying U.S. and Japanese stocks on the dips. And don’t believe the (latest) hype in emerging markets.

That’s it for this week. Before you go, though, let us know what you think of this weekly column – or any of our recent work at Wall Street Daily – by sending an email to [email protected] or leaving a comment on our website.

Ahead of the tape,

Louis Basenese

The post Friday Charts: Hogs, Fireworks and the Worst Performing Stock Markets of 2013 appeared first on  | Wall Street Daily.

Article By WallStreetDaily.com

Original Article: Friday Charts: Hogs, Fireworks and the Worst Performing Stock Markets of 2013

By HY Markets Forex Blog

Investors are expecting the European market to open green on Friday, as they wait for the US job data to be released, to indicate whether the US labor market is improving.

The expected US data will determine the following step the Federal Reserve plans to take with the asset-purchasing program.

The European Euro Stoxx 50 index gained 0.21% at 2,648.50, while futures for the French CAC 40 jumped 0.18% to 3,814.50 .The German DAX rose 0.31% at 8,025.30, at the same time the UK’s FTSE 100 futures rose 0.33% to 6,397.80.

Investors await the job data to be released later on Friday. The data is expected to show a drop of 7.5% in the unemployment rate, from previous rate of 7.6%

On Wednesday , data from the world’s largest economy showed that the figures of people employed in the US ,has increased by 188,000 in June ,compared to previous record of 134,000 in May .

Other reports released showed jobless benefits in the US declined by 5000 to 343,000, from previous records of 348,000, according to the Labor Department.

In Germany, factory orders are forecasted to gain 1.2% in May and increase by 0.1% annually after falling 0.4% in April.

Stocks in the Asian market traded higher on Friday, after the European Central Bank and the Bank of England maintained the policies. The Hong Kong, Hang Seng rose by 1.71% to 20,819.13, while the Shanghai Composite gained 0.25% to 2,011.13 in time of writing.

The post Europe market to open green ahead of US data appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

Following the positive US jobs data which showed the increase in employment in the world’s largest economy, Asia stocks were mixed Thursday morning after the US data revealed the increased number of the employed people in the private US private sector .With an increase of 188,000 in June from previous reading 134, 000, surpassing analysts’ predictions of a 160,000 increase.

Tokyo’s Topix index fell 0.5% to 1,167.91 points as of 2:17am GMT, while Nikkei 225 declined 0.41% to 13,998.47 points at the same time. Mitsui Mining, JFE Holdings and Smelting all dropped by over 3%. The Hong Kong hang seng index advanced 1.24% to 20,396.54 points as of 2:17am GMT.

The MSCI Index gained 0.8% to 424.46 as of 1:03p.m in Hong Kong. While the South Korea’s Kospi index advanced 0.16% to 1,827.62 as of 2:11am GMT. Australia’s S&P 200 index gained 0.9% as the New Zealand’s NZX 50 Index dropped 0.1% .The Straits time index gained 0.9%, while in Taiwan, the Taiex index slid 0.2%.

China Petroleum & Chemical Corp advanced 3.1% to A$35.69, while the West Texas Intermediate crude climbed 0.2% to $101.40 a barrel for the August delivery.

Due to the fallback of the Japanese yen falling below the 100 yen mark, car exporters’ such as Nissan motors declined over 1.8%, while Mitsubishi motors’ dropped over 3% .

The post Asian stock climbs on U.S job data appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By MoneyMorning.com.au

So, turns out it was a joke.

We’ve listened in on Reserve Bank of Australia governor, Glenn Stevens’ address to the Economic Society of Australia, and it’s a hoot.

OK. No it isn’t.

Opening his presentation, the governor said the RBA board had ‘deliberated for a very long time’ before deciding to leave interest rates unchanged.

The financial markets took him at his word and assumed the RBA was within an inch of cutting rates. That sent the Australian dollar into a tailspin from which it hasn’t yet recovered.

But whether it was a joke or no, either way it wasn’t funny. And besides, every man and his dog knows rates will fall this year. So if you haven’t structured your portfolio to benefit from that you better get cracking…

It’s important to remember that two things move markets – earnings and interest rates.

How so?

Simple. If a company can increase its earnings it becomes more valuable to investors. That means the share price should rise as long as investors believe earnings will keep rising.

And if the market expects the company to pass the higher earnings through to investors as a dividend, or that the company plans to expand the business through reinvestment, it will encourage investors to hold or buy the stock.

As for interest rates, that works for stocks in two ways. First, if interest rates are low it means lower financing costs for companies that are in debt. Second, it means bank savings rates will be low. And that means investors will look for alternative investments that pay a higher income – namely, dividend-paying stocks.

But low interest rates help another bunch of stocks too – growth stocks…

The Starting Point of Every Investment

Now, at first thought you might wonder how earnings and interest rates can impact growth stocks, especially small-cap stocks. After all, most small-caps don’t make a profit, and they’re so risky banks won’t lend them money. That means they can only get access to capital by convincing investors to buy new shares from the company.

However, earnings and interest rates still play into an investor’s thinking. For a start, even when you buy the most speculative stock on the market, you’re still thinking about the profits it could make in the future and therefore how high the shares could climb.

And even if you plan on selling before it makes a profit, the investor who buys the stock from you is also thinking about the future profit potential.

OK, but what about interest rates? Interest rates serve as the basis from which you judge the relative risk and reward of all other investments.

Put another way, if a bank account pays you a risk-free return of 5%, it doesn’t make sense to put money into an investment where you could lose half your money at worse, but only make 4% at best.

So that’s why earnings and interest rates have such a big impact on stock prices…even on some of the smallest stocks. Anyway, back to those growth stocks we’re eyeing up…

A chart that’s almost too scary to look at is the S&P/ASX Emerging Companies index. When you look at the chart below you’ll see why:

Source: CMC Markets Stockbroking

The index has halved since 2011.

Over the same period the S&P/ASX 200 is just about breakeven…better than breakeven if you include dividends. And if we go from the start of 2012, the Emerging Companies index is down 34%, while the blue-chip index is up 17% (plus dividends).

In other words, whichever way you slice and dice this market, it has been an ordinary…scratch that…it has been a terrible year or two for growth stocks.

That’s exactly why we like them so much.

A Bet Worth Making

We’ll be honest. We won’t say we’ve picked the bottom of the market here. We thought the bottom was in for small-cap resource stocks about two months ago. We even went on record to say stocks looked the best value since 2008/2009.

Well, if they looked good value two months ago, they look even better today.

This is part of the key to being a successful contrarian investor – buying stocks that everyone else hates. The biggest trick is the timing. Ideally you should wait until the stock or index hits rock bottom and then buy as it swings higher.

Trouble is, stocks rarely rise and fall in neat, straight lines. They tend to trick you into buying (and selling) just when you shouldn’t.

And sometimes – as happened recently – just when we thought things couldn’t get any worse. Only they did. The gold price slumped and dragged the gold miners and explorers down with it.

It wasn’t just the gold stocks. When the market goes through a rough patch as bad as this, investors tend to throw everything out of the basket, good and bad. That explains why there’s so much value in speculative stocks right now.

But to most investors speculative stocks look too risky. And so the mistake many will make is to think that dividend stocks are the only way to make money this year. But as we’ve shown above, low interest rates have a big impact on growth stocks too.

So knowing that rates are staying low (the Bank of England and European Central Bank both vowed overnight to keep rates low and stocks surged), the next step is to pick the right type of stock that stands to make the best gains over the coming months.

Dividend stocks still make sense. But don’t overlook growth. Our bet is it won’t be long before investors tire of income stock returns and look for tastier returns among growth stocks.

We thought that time had come two months ago…but we were too early. Today growth stocks look even better value than they did then. Is now the time to start buying some of the market’s riskiest stocks?

That’s our bet. It’s a risk worth taking. But we’ll only know for sure two months from now. Stay tuned.

Cheers,
Kris+


From the Port Phillip Publishing Library

Special Report: Just What are ‘Turbo Cap’ Stocks?

Daily Reckoning: How the Power of Tweets Saved Tesla Motors

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