Month: August 2013

By Profit Confidential

If you had to choose between buying Intel Corporation (NASDAQ/INTC) and Phoenix New Media Limited (NYSE/FENG), which stock would it be? This is the kind of dilemma we are currently witnessing in stock market trading, as investors look at the risk they want to assume.

In 2013, the preference has been for small-cap growth stocks such as Phoenix New Media over the older and established Intel, which provides a nice dividend, if that is what you want.

The example indicates why there has been a move and shift toward the assumption of greater risk—the opportunity to increase the expected return of your portfolio.

The chart below shows the outperformance of Phoenix New Media in the dark green line versus Intel, which is reflected by the red candlesticks.

Chart courtesy of www.StockCharts.com

Large-cap stocks like Intel are nice, but for the added return, you need to make sure that you have small-cap stocks in your portfolio. To reduce the risk of small-cap stocks, diversification based on company size and industry is required. (For more on the restaurant segment, read “My Top Picks for Restaurant Stocks.”)

At this point, traders appear to be pursuing the risk of small-cap stocks with the hopes of achieving some big gains. This could happen, yet at the same time, with the good generally comes the bad. Small-cap stocks are vulnerable to higher downside risk—especially when the broader market and economy are turning down.

With the current economy showing some stalling, it may be prudent to take some profits off the ledger for some of your bigger winners. For instance, if a stock is up 100% or more, take some profits on at least half of your position, and let the remaining half ride as free money, as you have already made back your initial investment.

If a correction surfaces, and I believe it will, holding small-cap stocks is dangerous due to the heightened probability of more losses during a downturn.

Of course, large- and mid-caps will also tend to turn lower, but not at the same degree as small-cap stocks.

Being a specialist in small-cap stocks and special situations, I constantly look at the macros and, if warranted, will take profits off the table or will sometimes hedge via put options on the Russell 2000 Index to help shelter against some of the downside risk.

The Russell 2000 chart is showing some hesitation, so I would err on the conservative side and take some profits—especially on your non-long-term holdings.

Article by profitconfidential.com

By Profit Confidential

The retail sector of the economy acts as a gauge of consumer spending. When the retail sector shows weakness, it means consumer spending isn’t as strong. If that becomes the case, economists assume the U.S. economy will perform poorly since consumer spending makes up about two-thirds of U.S. gross domestic product (GDP).

As it stands, the retail sector is showing weakness and providing troubling news on consumer spending. According to Thomson Reuters, sales at retail stores open for at least a year increased a dismal 3.9% in July, below the analyst expectation of a rise of 4.4%. (Source: Reuters, August 8, 2013.)

A well-known name in the retail sector, Gap Inc. (NYSE/GAP), registered an increase of one percent in July same-store sales from July 2012. Analysts were expecting an increase of 1.7%.

Costco Wholesale Corp. (NASDAQ/COST) said its July same-store sales increased four percent from July 2012; analysts were expecting a rise of 5.1%. The company also stated that consumers are shying away from buying big-ticket items such as electronics.

In July, American Eagle Outfitters (NYSE/AEO) reported a decline of seven percent in its quarterly same-store sales, again compared to July 2012.

What’s even more troubling…to get those sales in July going, the retail sector had to offer deep discounts to customers.

July usually kicks of the back- to-school shopping season and gives us an idea of how consumer spending going into the fall season looks. After the holiday shopping season, the back-to-school season is the second busiest for the retail sector.

As it stands, the National Retail Federation (NRF) is already expecting lower spending in the retail sector on back-to-school goods this year. This trade association expects families with school-age children to spend $634.78 this back-to-school shopping season compared to $688.62 last year—a decline of almost eight percent. (Source: National Retail Federation, July 18, 2013.)

My question; how long can the optimism in retail stocks last while demand in the retail sector from consumers is falling? Sooner rather than later, the irrationality between the prices of retail stocks and what their growth prospects are will meet an unpleasant reality.

Michael’s Personal Notes:

Through its quantitative easing program, the Federal Reserve has created about $3.0 trillion in new money out of thin air. This was all in the name of getting consumer confidence in the U.S. economy going again.

Did this actually occur?

As it stands right now, consumer confidence in the U.S. economy is bleak and quantitative easing is failing on this front. Quantitative easing, as far as I’m concerned, has helped all those connected to Wall Street, has created another stock market bubble, and hasn’t helped the average American.

I’ve said it many times in these pages, quantitative easing won‘t be the factor that will increase consumer confidence. All we have to do is look at the Japanese economy and see what’s happened there. Quantitative easing didn’t work there…it didn’t boost consumer confidence.

In July, consumer confidence in the Japanese economy fell again. The index gauging the confidence of consumers registered at 43.6 in July—declining from 44.3 in June. Note: Any reading below 50 on the index suggests consumers are pessimistic. The Cabinet Office, which tracks the index, said the pace of consumer confidence is slowing. (Source: Reuters, August 9, 2013.)

We can see from the “Japanese Example” that quantitative easing doesn’t increase consumer confidence. If it did, then we would see its effect on the Japanese economy, as the central bank there has been printing money for some time now.

Just like the Japanese economy, quantitative easing here has caused the stock market to rally.

Now, once quantitative easing ends, if it ever does, it can be damaging to both the bond market and the stock market. I remain firm on that belief and recent mixed messages from the Federal Reserve have only cemented my conviction. Whenever we heard members of the Federal Reserve talking about the Fed tapering off quantitative easing, the stock market declined and bond yields soared.

If the money printing ever does end, it won’t be pretty for the markets.

Article by profitconfidential.com

By Profit Confidential

Through its quantitative easing program, the Federal Reserve has created about $3.0 trillion in new money out of thin air. This was all in the name of getting consumer confidence in the U.S. economy going again.

Did this actually occur?

As it stands right now, consumer confidence in the U.S. economy is bleak and quantitative easing is failing on this front. Quantitative easing, as far as I’m concerned, has helped all those connected to Wall Street, has created another stock market bubble, and hasn’t helped the average American.

I’ve said it many times in these pages, quantitative easing won‘t be the factor that will increase consumer confidence. All we have to do is look at the Japanese economy and see what’s happened there. Quantitative easing didn’t work there…it didn’t boost consumer confidence.

In July, consumer confidence in the Japanese economy fell again. The index gauging the confidence of consumers registered at 43.6 in July—declining from 44.3 in June. Note: Any reading below 50 on the index suggests consumers are pessimistic. The Cabinet Office, which tracks the index, said the pace of consumer confidence is slowing. (Source: Reuters, August 9, 2013.)

We can see from the “Japanese Example” that quantitative easing doesn’t increase consumer confidence. If it did, then we would see its effect on the Japanese economy, as the central bank there has been printing money for some time now.

Just like the Japanese economy, quantitative easing here has caused the stock market to rally.

Now, once quantitative easing ends, if it ever does, it can be damaging to both the bond market and the stock market. I remain firm on that belief and recent mixed messages from the Federal Reserve have only cemented my conviction. Whenever we heard members of the Federal Reserve talking about the Fed tapering off quantitative easing, the stock market declined and bond yields soared.

If the money printing ever does end, it won’t be pretty for the markets.

Article by profitconfidential.com

By Profit Confidential

The stock market is ready for a long-deserved break. There’s already been a small consolidation among many brand-name blue chips. PepsiCo, Inc. (PEP), one of my favorite benchmarks, is a couple points off its high with a trailing price-to-earnings multiple of approximately 20 and a forward price-to-earnings multiple of approximately 18.

PepsiCo is a good business. In fact, it’s better than The Coca-Cola Company (KO), which is useful if you are thinking about these stocks in a long-term equity market portfolio.

I continue to find it difficult to be a buyer in this stock market. Recognizing the opportunity cost of not being in the market and the fact that there are always good trades out there, I’m just not a big fan of loading up on the equity market right now.

The resilience that the stock market has shown this year is pronounced. But I refer you back to the fact that the stock market is very much a leading indicator, a speculative pricing mechanism of the value of future earnings. Given the performance of corporate earnings in the second quarter of 2013 and Wall Street’s expectations for the bottom half of the year, the stock market is fully priced.

One income-generating sector that’s losing some of its shine is the utilities sector. On the stock market, this sector was particularly hot in the first six months of the year, but has pulled back with pressure on interest rates. This is an area where I would be focusing if looking for new dividend-paying stocks.

Noteworthy names within the group are The Southern Company (SO) and Duke Energy Corporation (DUK). A balanced stock market portfolio is always well served by a higher-yielding utility stock. Both Southern and Duke offer current dividend yields of more than four percent.

In terms of portfolio strategy, traditional names like Johnson & Johnson (JNJ), Colgate-Palmolive Company (CL), and The Procter & Gamble Company (PG) are very lofty in terms of their valuations. These businesses aren’t going away by any means, but now isn’t the time to be buying them. (See “One Company, Two Vital Themes to Consider.”)

The stock market has been chasing these names since last summer, as the marketplace craves stability in earnings and dividends.

Frankly, in terms of large-caps in this market, there aren’t a lot of buying opportunities that stand out as a real deal. Oil is holding above $100.00 a barrel, but big oil companies reported only mediocre second-quarter numbers. The problem for big oil is declining production. Growth is becoming a serious issue for the big players; they just can’t find and extract enough of the commodity.

Really, the only attractive area in terms of sector strategy is the utilities, and this group is likely to continue to be under pressure due to rising interest rates.

The stock market is very much a hold at this time. We’re due for a correction—but then again, there’s nowhere else for investors to go to generate a rate of return greater than the inflation rate. There are no bandwagons in this market.

Article by profitconfidential.com

By Profit Confidential

With the summer months drawing to a close, it has been a somewhat warm few months for the stock market with the S&P 500 and Dow recently at record highs.

Yet we are now seeing a pause, which may or may not be an indication that the current stock market rally has fizzled out after sizzling higher on the charts. Now, I would not be surprised to see a five-percent (or more) stock market correction. In fact, I would love to see a stock market adjustment.

Some of the market leaders in 2012 and 2013 are beginning to fade, and this indicates a possible near-term stock market top.

The leadership of the banks is sliding. The chart of the Philadelphia Bank Index below shows the current situation of a potential bearish double-top forming in these stocks. Failing to attract support (at the bottom blue support line to the right of the chart) could see bank stocks drop lower on the charts, and they will take the broader market down with them.

Chart courtesy of www.StockCharts.com

We are also seeing some exhaustion in the previously sizzling housing market. (See “Why the Housing Market Is Eyeing the Fed’s Bond-Buying Strategy.”) The chart of the S&P Homebuilders Index below shows the current downward trendline after the index peaked in May. A closer look shows that a bearish descending triangle may be in the works, which could see the housing sector stocks fall through the lower support line.

Based on my technical analysis, and as I have said in previous commentaries, I would be very careful about chasing housing stocks higher. The easy money in this sector has already been made.

Chart courtesy of www.StockCharts.com

The S&P 500 also looks a bit tired following its breakout in early July, as shown by the blue circle in the chart below. The index is hesitating and moving sideways. A retrenchment could drive the index back below the horizontal support level.

Chart courtesy of www.StockCharts.com

Now, look at the chart of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX). The chart shows traders are calm and relaxed with little fear of what could happen. The last time the VIX was this low was back in 2007, and we all know what followed shortly thereafter: the Great Recession in 2008.

Chart courtesy of www.StockCharts.com

Complacency in the stock market is often a death wish that could result in a disastrous end. Don’t get too relaxed at this time, or you could find yourself singing the blues from the sidelines very soon.

So while the stock market could edge higher, these four negative charts shown above suggest to me that there could be a relapse on the horizon.

Article by profitconfidential.com

USDJPY’s rise from 95.81 extends to as high as 98.34. Further rise to test the resistance of the downward trend line would likely be seen, as long as the trend line resistance holds, the rise from 95.81 could be treated as consolidation of the downtrend from 101.53, another fall to 95.00 to completed the downward movement is still possible. On the upside, a clear break above the trend line resistance will indicate that the downtrend from 101.53 had completed at 95.81 already, then further rise to test 103.73 (May 22 high) resistance could be seen.

Provided by ForexCycle.com

By MoneyMorning.com.au

It’s almost as though May and June didn’t happen.

You could have gone on holiday around mid-June and come back today assuming not much had happened – even though the market has fallen and risen 10% in that time.

Yesterday the S&P/ASX 200 index finished the day at 5,157 points.

That’s just 92 points below the high point the index hit on 15 May.

So, what can you expect to happen next?

Let’s see…

As confident as we are about the market going higher, we’re also aware that a ‘bolt from the blue’ could send the market tumbling.

That’s especially so when the market is at a key level. We’ll show you what we mean in a moment.

So, which is it? Will it be a rising market or a falling market? You want clear-cut and direct advice. You don’t want to hear that the market could go one of two ways.

That’s the kind of junk you’d expect from the mainstream media. So, here’s our view straight down the line…

Always ‘Take a View’ on the Stock Market

Our simple message is that it’s OK to have Plan A if things go to plan and a Plan B if things don’t go according to plan.

That doesn’t mean you’re sitting on the fence.

We remember the boss at our old broking firm. If anyone wavered on forming an opinion on a stock, he would say in a monotone, ‘Take a view.‘ He would keep saying it until the analyst or broker said a stock was either a buy or a sell.

It was a useful lesson that we try to stick to today.

However, taking a view one way or the other doesn’t mean being inflexible.

Stocks may be a buy one day with a certain set of risks, and yet they could be a buy with another set of risks a few days later. The same goes on the sell side.

Let’s show you the last few weeks of price action on the S&P/ASX 200 as an example. Look at the chart:

Source: CMC Markets Stockbroking

Back in June it seemed to most people that the world was ending as bond yields soared. But we figured it was a storm in a teacup. We said investors should use the ‘crash’ as an opportunity to buy shares.

We took a view and clearly gave you the advice – buy stocks (we recommended ‘scaling in’ if you weren’t 100% sure).

Even so, we got plenty of emails telling us it was a foolish view and that we had ‘sold out’ to the mainstream (even though the mainstream was saying sell and ran stories each day about the billions wiped off the market).

Now, that didn’t mean our strategy was risk free. But we figured if you also followed our advice by only having a maximum of 40% of your wealth in the stock market, then you had some protection if the market kept falling.

It turns out our advice was spot on. Stocks rallied and are now back near the top of the range.

Short Sellers Feeling the Pain if Market Goes Higher

So, what do we say now? We need to ‘take a view’ on where the market is now.

Well, we can’t ignore the fact that each time stocks have moved into this zone they’ve met resistance. It’s happened twice already this year – in March and again in May.

And if you look at a five-year chart you can see stocks have failed around this level several times in 2009, 2010 and 2011.

There’s nothing to say stocks won’t fail this time too. But we’re still backing stocks to go higher. We’re still banking on the main Aussie index hitting 7,000 points two years from now.

For that reason we suggest that you selectively buy dividend-paying stocks and beaten-down growth stocks. If we’re right and the market finally bursts through this point of resistance, it could result in rapid gains.

One reason for that is many traders will have placed stop orders to buy-back stock on their short positions around this resistance level. In other words, once the market gets near that level they’ll rush to cover their short positions in order to prevent further potential losses. Short sellers will be in some pain at the moment, following the market’s quick rise.

Of course, just as it was risky to buy stocks during the June sell-off, it’s risky to buy stocks now. It’s just a different set of risks.

Instead of buying into a market when investors are fearful of the market falling further, you’re buying into a market where investors are fearful of giving away profits if the market falls.

Clear and Actionable Analysis

Finally, don’t underestimate the power of investor psychology and stock price momentum. It may sound crazy but sometimes just the lack of bad news can be enough to keep a rally going – ‘no news is good news’.

That won’t be enough to take the Aussie index to 7,000 points, but it could be enough to carry stocks through this key resistance level.

We know that view will anger plenty of folks. They’ll accuse us of ‘lightweight’ analysis. But we simply say, do they want heavy analysis that doesn’t make them a penny, or do they want actionable analysis that has helped investors keep their heads and buy stocks when most others were panicking to sell?

The fact is to a large degree investing can be as simple or as complicated as you make it. Where possible we try to keep things simple.

In short, we take a view on the markets and tell it to you straight. Plan A is to buy stocks. Plan B is to make sure you don’t have too big an exposure to what is still a risky market.

That’s not hedging bets or sitting on the fence. It’s giving sound advice that should have served you well over the past two years of volatile markets.

Cheers,
Kris+

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From the Port Phillip Publishing Library

Special Report: The Sixth Revolution

Daily Reckoning: Why Gold Has an Interesting Tale to Tell

Money Morning: Why I’m Glad I Missed a Dividend Stock That Doubled…

Pursuit of Happiness: Innovation Where You Least Expect… In the Shale Gas Industry

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks

By MoneyMorning.com.au

‘I have a very strict gun control policy: if there’s a gun around, I want to be in control of it.‘ – Clint Eastwood

If Dirty Harry read the recent research on the growth and projected growth of self-managed superannuation funds (SMSFs), he would conclude when it comes to super, investors ‘want to be in control of it‘.

It would be interesting to conduct a study to identify the main driver behind the huge growth of self-managed super funds.

Perhaps it’s a push back to the growing government control over our lives. So that where possible we’re subconsciously taking back control from government and corporations.

Or perhaps it’s just a case of not trusting anyone else to manage your retirement capital. Or maybe it’s about lower fees and more investment flexibility.

Whatever the reasons, the recently published research from the SMSF Professionals Association and Macquarie Bank conclusively shows the popularity among Australians of gaining self-control of their financial future.

As of March 2013 there were 503,320 SMSFs. This is a 7.3% increase over the past twelve months (700 new funds every week).

Just shy of one million members are in these funds and they control around $500 billion (half a trillion). That’s an average of $1 million per fund (approx. $500,000 per member).

Due to fixed cost fees (as opposed to percentage based fees), SMSFs are more attractive (cost wise) for those with large super account balances. Paying fixed audit and accounting fees of $3,000 is a far less percentage on $1 million than it is on $10,000.

A Big Trend in the Market

The most interesting thing about the SMSF Professionals Association and Macquarie Bank report are those looking to establish their own fund over the next three years.

Firstly the report stated:

‘That growth seems likely to continue. Macquarie research reveals that one in 12 Australian adults says they plan to open an SMSF in the next three years, equal to around 1.4 million people. If they were to act on those plans, the total number of SMSF members would more than double.‘

Doubling of members in the next three years? This is a big trend. But you’ll be surprised where a good portion of those new members will come from. It’s not baby boomers.

Click to enlarge

Gen X & Y (the more tech savvy generations) are lining up to take control.

Look at Gen Y’s (typically those born in the early 1980′s to early 2000′s) surge in recently (green bar) established funds.

This trend among those aged between 30 and 50 (straddling both X & Y) may have something to do with their confidence that ‘Google’ can provide whatever information they need to manage their own affairs.

Irrespective of the possible drivers, one thing is clear: well-heeled members with access to information want control over their retirement capital.

But a worrying trend is the increase in small funds borrowing to invest in real estate. A number of reports indicate Australia has some of the most expensive real estate (on a multiple of average salary) in the world.

Lower interest rates may push house prices higher, but this only pushes property values further into the danger zone. Everything, including interest rates, ultimately returns to the mean, and when they do this will adversely affect property prices.

SMSFs that have borrowed (possibly over-borrowed) to invest in a single purpose asset are flirting with real danger.

The other danger sign from this trend is what it means for institutional super funds. The majors like Colonial, BT, and MLC must have a little sweat on the brow.

How do they stop the exodus of their larger valued clients, the ones they make their cream from? A client with $5,000 invested pays a lot less fees (due to the percentage fee basis) than a $500,000 client. Yet they both receive the same quarterly statement, the same asset allocation decisions and regular newsletters.

In effect, the $500,000 client subsidises services for those with lesser values.

The institutions will have to re-think their service offering in order to remain competitive and relevant when compared to the cost and flexibility of SMSFs.

The Test SMSFs Must Pass

But with control comes responsibility. I suspect the ATO will be more watchful in its duties to ensure SMSFs don’t abuse their new found freedom.

Trustees of SMSFs should remember the guiding principle behind their investment decisions is the Sole Purpose Test. Here’s a reminder of what that is (courtesy of www.superguide.com.au):

‘Sole purpose test is a test that ensures a superannuation fund is maintained for the purpose of providing benefits to its members upon their retirement (or attainment of a certain age), or for beneficiaries if a member dies. If a super fund trustee, a super fund member or relative enjoys a direct or indirect benefit before retirement from a super fund’s investment, that is, more than an incidental or insignificant benefit, then it is probable that the super fund has breached the sole purpose test.‘

For trustees and would-be trustees my advice is to err on the side of caution and stay away from the ‘exotic’ stuff.

Well reasoned investments in quality shares, fixed interest, cash, property and precious metals should be the asset base for SMSFs. Obviously the allocation to these asset classes will depend on age, risk profile and experience.

Stay away from the exotic or edgy stuff – art works, collectibles etc. That’s unless you have specific expertise and diligent administration to justify dabbling in these areas.

Remember, the last thing a trustee wants to hear is the ATO saying, ‘Go ahead, make my day!’

Vern Gowdie
Editor, Gowdie Family Wealth

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From the Archives…

Should You Still Buy Stocks Here? Yes, but…
09-08-2013 – Kris Sayce

The Secret to China’s $7 Billion Milk Market
08-08-2013 – Nick Hubble

RBA (Retirees Below Average)
07-08-2013 – Vern Gowdie

Have Australian Stocks Broken Free from China?
06-08-2013 – Kris Sayce

When Should You Sell Your ‘Loser’ Stocks?
05-08-2013 – Kris Sayce

By www.CentralBankNews.info     Armenia’s central bank raised its benchmark refinancing rate by 50 basis points to 8.50 percent, saying it expects inflation to slowly decline in coming months amid slower economic growth, which will allow the central bank to loosen monetary conditions.
    The Central Bank of Armenia (CBA), which has held rates steady since September 2011, said headline inflation rose by 0.4 percent in July for an annual rate of 8.5 percent, up from 6.5 percent in June.
    “The council agreed that inflation will gradually return to target levels and will remain in the permissible variation range,” the CBA said.
   The Armenian central bank targets inflation of 4.0 percent within a 1.5 percentage point band.

    www.CentralBankNews.info

Article by Investazor.com

Apple is back on the game, or better said… it always lead the mobile phone industry? At least on the American market, Apple is indeed the one with the greatest influence. According to a research made by Nielsen, 40% of American smartphone users own an iOS mobile device while 24.7% use mobiles with android operated by Samsung.

Another surprise is to come in less than a month. On 10th of September, a new iPhone will be launched, iPhone 5S which is expected to bright by its brand new operating system iOS 7. Investors already started to buy Apple shares, given the momentum that is expected next month.

The third quarter’s result for Apple disappointed. Comparing with last year-quarter ($8.8 billion net profit), this quarter reported only $6.9 billion. The CEO Tim Cook was proud to announce increased sales on mobile phones and strong growth in revenue from iTunes, Software and Services. Increasing the divided on share at more than $3, in its latest earnings report Apple declared itself satisfied by returning $18.8 billion in cash to shareholders through dividends and share repurchases. Next month will cause trepidations and investors will find out if Apple is indeed going in the right direction after losing its founder, Steve Jobs. Lately, Apple announce that will launch several products which will be cheaper, news that could affect the quality product picture that represents the company.

The post Apple, To Be Followed In The Next Period appeared first on investazor.com.