Romantic Brazil…

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HOME TO THE OLYMPICS, RAMPANT CORRUPTION, A RECESSION & MAYBE THE BEST OPPORTUNITY THIS YEAR

The Olympic Games are close. Brazil and the rest of the world are getting excited. The country has poured billions of dollars into getting ready. It’s sure to be a beautiful event. And, seemingly from Mount Olympus, a lightning bolt has struck Brazilian politics and economics.

They’re experiencing a 5-quarter recession…so far. The government is so crooked that 6 of 10 Congress members are facing corruption charges. The stock market is in the dumps.

SEEING THROUGH THE SMOKE

My favorite investing quote and strategy is to “buy when there’s blood in the street.” Very graphic but very helpful. We want opportunities that are cheap and beat-up. We want discounted assets.

The way I look at Brazil is the country is trading at 2005 prices. At that time, their economy was at about $882 billion. The 2016 estimate is for them to hit $1.53 trillion. That’s an increase of 73 percent! We’re buying a much bigger economy at half the price….

PLAYING THIS OLYMPIC-SIZED TRAGEDY

The largest ETF for Brazilian stocks is the iShares MSCI Brazil Fund ($28.15; symbol: EWZ). It has a 12-month yield of 3.3 percent and a low expense of 0.62 percent per year. The fund has over 60 different investments and over $3 billion in assets.

A warning: the top two stocks make up over 20 percent of the portfolio. So it’s both a concentrated and diverse fund. Yep. Sounds strange but they’ve achieved it. This can be good if you want exposure to Brazil and you have faith in these two companies.

The largest is Itau Unibanco. According to Wikipedia, it’s “the largest financial conglomerate in the Southern Hemisphere.” That’s usually a great way to get exposure to an economy. Banks lend the growth money, profit from upswings and are a good representation of the overall market. Buying a bank is like buying the lifeblood of a nation.

The second-largest holding is Ambev SA. They’re based in Sao Paulo and controlled by Anheuser-Busch InBev. This parent company is the maker of Budweiser, Corona, Stella Artois and over 200 brands. It’s also the world’s largest brewer.

These two concentrated positions look pretty stable and may juice-up the portfolio volatility. Both upward and downward. Yet the downward movement may have largely already happened.

To learn how to add international exposure to your portfolio: request a free copy my report, “Producing Large Portfolio Income.” Visit RetireIQ.com to request your report, giving you ideas on how to generate 5-7% annual portfolio income.

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How To Profit From Davos, 2016, Part 2

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Recently at The World Economic Forum in Davos, the CEO of PayPal said you can “have the power of a bank branch in the palm of your hand.” I thought that was pretty amazing, if true, and set out to figure out if he was really accurate.

Just poring over my memory of recent commercials, I figured if you had a Samsung (SSNLF 1025.oo, in local currency) smartphone and a Wells Fargo (WFC, $48.56) bank account you could, indeed, have “the power of a bank branch” in your mitts. Wow! You can get a check from a customer, take a picture and deposit it; you could transfer money from account to account and then back again; you could “withdraw” at a store, using your smartphone payment or shop from your phone; you could check balances and transactions, all with an app! This is amazing technology. Unheard of two or three decades ago. Real Star Trek stuff here.

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While Samsung is very tough to buy directly for an American investor (I checked into it for a client and, if that same ol’ memory serves, you would need to be a citizen of some European country to get it done). The next best thing is to buy a U.S.-based mutual fund that holds a large position in Samsung. Does such a fund exist? Sure does.

The iShares MSCI South Korea ETF (EWY, $46.77) holds almost 20% of it’s funds in Samsung Electronics. This would probably be the easiest way to get significant exposure to the stock. As a bonus, an investor would also get diversification, liquidity and over 2% in annual dividend income.

Despite the exciting possibility, despite the source of the idea don’t invest a lot into trends. Rarely does it end well going “all in” following an amazing idea. Maybe for a time but not long-term. Yet these industries and ideas can make investors money.

My point here is that following hot ideas is usually a fun way to play with a small bit of money. For consistent wealth-building, though, you want to stick with the very boring approach of asset allocation, true diversification, buying low and time in the market. Sure, play around with 5% of your money but be ready for any result, good or bad.

Here’s the Bloomberg Davos video that got the juices flowing for this article.

For my popular report “10 Investor Oversights” visit RetireIQ.com, enter your info and mention the name of the report to receive a free copy. Also, if you wrangle a new sign-up to this e-letter I’ll give you a $5 Starbucks card. Just direct ’em to the above website. Thanks.

 

 

How To Profit From Davos, 2016, Part 1

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World Economic Forum logo.svg                        

Many of the greatest economic thinkers, managers and superstars attended this year. There were billionaires, heads-of-state, CEOs, money managers, professors and more billionaires. Did I mention there were billionaires there? This was the place to be.

I ran across this great “highlights” video from Bloomberg.com and was happy to see that the “smart money” confirmed my thoughts: this correction is no big deal. I’ve thought, for two years now, that the U.S. market had been up for 6 years straight and needed to correct. Since we didn’t have a significant, or long, contraction, I thought when it finally hit (now) that it could turn into a small bear market. Thankfully I’ve been wrong on this last point.

But I digress. How can you profit from this correction and multiple global bears and how does it tie into Davos?

Answer: Christine Lagarde, the head of the International Monetary Fund, said in the previous video that “we will have volatility” in 2016. And she’s absolutely right. I’ll take it a step further: We will have volatility every day of every year into the indefinite future! That’s the market. And market participants get rewarded for this volatility and patience. So you, as a brave, courageous & profitable investor, need to buy this volatility. Either in a retirement plan on a monthly basis (best) or making calls on an undervalued sector (maybe even better).

I have an answer for the undervalued sector. To me this is a no-brainer. Find a solid asset in the energy sector. I’m going to repeat a drawing of mine about a specific fund. This is not a recommendation only a vivid example of a cheap asset. I’m actually recommending mid-stream MLP mutual funds. I’m using one now that has a TTM (trailing twelve month) yield of 11.54%.

OIL

Visit my website at RetireIQ.com to request a one-page info sheet on that MLP fund, yielding over 11 percent. Just type in “MLP info” when signing up.

So back to volatility. We, as smart investors, have to have the chutzpah to buy these down times. We get rewarded for buying risk assets at low prices. Assets like stocks, businesses, real estate, even bonds at certain times.

I just finished an article for the local paper The Senior Beacon. Take a look in February when it gets posted (online or in most grocery stores). I go into the recent correction, various international bears and how you could further profit from declines.

 

 

World’s Most-Traded Commodity on fire sale, selling at 64% discount

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OIL

A POPULAR OIL-BASED ETF (symbol: OIL)

A ONCE-HOT MARKET COOLS DOWN TO SUB-ZERO TEMPERATURES

The above picture is an extreme example of the bargains available in the energy sector. I don’t necessarily recommend that ETF but it shows how hard oil has been hit in the marketplace.

The commodity is suffering short-term and long-term issues. According to Nasdaq.com, the 2008 price of crude oil was about $140 per barrel and is now not quite 50 dollars.

WHAT’S THE MATTER WITH OIL?

First, the short-term problem. There’s a global growth slowdown, excluding the U.S., fortunately. The biggest lame duck is China. The fastest-growing economy losing their momentum spells big trouble for all sorts of commodities, ranging from copper and lumber to energy.

Another very short-term, seasonal issue is winter. We just use less gas, and oil, in the winter. We’re not running around having fun in the sun. We’re stuck in the house and at work, using natural gas and electricity.

LONG-TERM, SYSTEMIC OIL PROBLEMS

The major problem: technology, in the form of fracking and horizontal drilling. These two methods are smothering long-term high oil prices. They’re responsible for the U.S. turning around a 60-year (!) trend of fuel importing and turning into a fuel exporter.

That’s huge news. A systemic problem. We’re now in the league of Saudi Arabia and other major oil reservists. This change will have lasting impact in the industry and market.

That being said, is the world going to abandon oil use? Not any time soon. That’s why I’m optimistic about the price of oil coming back. I even made a prediction, earlier in the year, that oil would be 50% higher by the end of December. We’ll know very soon if I made a foolish prediction.

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A few widely-held ETFs that are oil plays (and year-to-date performance*):

  • USO: Unites States Oil Fund (-27.90%)
  • DBO: DB Oil Fund (-27.71)
  • IEO: iShares U.S. Oil/Gas Exploration & Production (-21.40)
  • XLE: Energy Select Sector SPDR (-21.06)

And a few popular oil-based stocks (with year-to-date performance*):

  • XOM: Exxon Mobile (-17.25%)
  • CVX: Chevron (26.82)
  • BHI: Baker Hughes (-6.28)

* Data sourced from Morningstar.com

Will China contagion infect the U.s.?

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BIGGER NEWS THAN GREECE OR PUERTO RICO

The Chinese stock bubble popping, their economy slowing and China using less resources…that’s a pretty big deal. These things will impact economies, markets and companies.

HOW IMPORTANT IS THE CHINA BUBBLE?

It’s actually a lot less of an impact on U.S. investors than the media lets on. First of all, the major bubble is in “A” shares which American investors can’t even directly own. Those indexes have dropped over 40 percent.

As a comparison, the largest China ETF (exchange-traded fund), the one most U.S. investors would have, has only dropped about 20 percent. The fund is called iShares China Large-Cap (symbol: FXI). It dropped but only half as bad.

This stock run-up, and drop, was mainly caused by heavy margin buying. Chinese investors are accumulating shares with debt, encouraged by their government to do so. The government was still encouraging it during the plummet.

Leveraging like that can be very dangerous. Especially in an over-valued market. The price and euphoria reminds me a lot of the Tech Boom…and Bust. Even the P/E ratio is similar, a little over forty. This is very high for any major index. The higher this climb, the more over-valued the shares, the harder the drop will be.

CHINA IS BEGINNING TO EXPERIENCE AN ACTUAL “NEW NORMAL”

Bill Gross should be happy now. There is a dynamic economy experiencing his vaunted new normal. It’s just not the U.S. like he predicted. It’s China having the slow-down. The government even conceded, in their estimates, that the economy will “only” grow at 7.5% a year for the near future. This is lower than their previous double-digit GDP growth.

MORE AMERICAN COMPANIES EXPERIENCING REVENUE DECLINES

Besides the weakness in commodities like copper, which China is the largest user of, there are many drops in multi-national company sales. Not all of it’s caused by the overseas slowdown but it must be impacting revenue somewhat.

There could be opportunities in natural resources, China and other Chinese “plays” like Australia. I haven’t fully looked into these yet but, if the drop continues, it could make those investments more attractive. And I certainly wouldn’t bet against this giant economy for the long-term.

does greece matter?

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Greece flag

GETTING RID OF GREECE ANXIETY…

I recently wrote an article about the importance, or lack of importance, of Greece to the U.S. economy. First off, Greece is a wonderful country, having contributed a lot to modern life. Things like democracy, Western philosophy. Big things. But one stat I included in the article sums up their impact on the U.S.:

* Annual U.S. trade with Greece is about one day’s worth of China/U.S. trade

Total annual imports and exports between Greece and America are about $1.821 billion. Total annual trade! Total U.S./China trade for the same year, 2014, was $590 billion. Almost 324 times more trade activity with China!

So forget that anxiety being fed to us by the media. The worse it gets over in the Euro zone the better our economy and market looks to investors. And, since the markets are ultimately a popularity contest, their problems could boost our strength.

The bigger issue could be China’s current problems. I’ll leave that for another post.