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.

 

 

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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

The 9th Largest World Economy Is On Sale

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What if you could buy the ninth largest economy at a discount of over 35% of book value (Investopedia.com describes book value as: “…the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated.”)? An economy that propelled the average monthly pay from $80 in the year 2000 to $967 in 2013, has unemployment of only 4.9 percent and a GDP per person of $14,818.

The capital of this country has repeatedly been called the “billionaire capital of the world” by Forbes. This country has 144 million people, spans nine time zones and is rich in natural resources.

I’ve recommended to many clients to have a 2-4% allocation to this country and I just purchased some of this countries’ index for my personal investments, too.

What is this country? Make sure you’re sitting down when you read this. If you haven’t already guessed, the country is Russia. I know, I know. Aren’t they doing crazy things like annexing countries? Yes, they are. Don’t they have an uncontrollable, quasi-dictator? Yes, but…

Famous 18th century financier, Baron Rothschild, said “The time to buy is when there’s blood in the streets.” In other words, buy when everyone is afraid and selling. While the Russian economy is no U.S. economy, if you’d have bought the Dow Jones at its recent weakest (March, 2009) it would have almost tripled. The DJIA was then about 6,500 and is now over 17,400, closing as high as 18,024 last December.

This is a risky category and should only be a small part of an investors money but could have significant upside.

The Russian mutual fund I use has 29 investment holdings, access to about 85% of their stock market, a forward P/E ratio of 4.54 (low is good) and a 12-month trailing yield of 6.07 percent. If you’d like more information you can email me at RonPhillipsAdvisor@gmail.com or call me at (719) 545-6442.

Will a Dollar Crash Cause a “25 Year Depression”?

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I was on a website last Friday and saw an ad. I rarely click on ads but I couldn’t resist. The headline mentioned something about a 25-year depression. That’s a pretty bold claim. And I know there’s about a million of these outrageous claims on the internet. But what if??

So I clicked on it and started watching a video by Jim Rickards. He sounded pretty qualified despite the puffed-up claims to expertise. And he mentioned something I had read about before that really could be catastrophic: the world going off of the U.S. dollar.

I had worried about this for my kids and future grand kids. But I didn’t think it would happen too soon. Yet it could happen and it wouldn’t be good for America.

To oversimplify the issue, when the world completely drops the U.S. dollar as a reserve currency it will make the price of what we consume at home hugely more expensive. So we can then either consume less or finally start selling more. Or both.

The consume less part would happen right away. We would be forced to do that. Our weak dollar simply wouldn’t buy as much imported stuff (apologies to my high school teacher for using ‘stuff’ as an actual noun).

And we are, thankfully, already starting to sell a little more. Mainly fuels due to the dynamic oil/energy sector.

So it’s a worrisome problem. And it got me thinking: would the world just drop our currency overnight? Unlikely. It’s similar to the holding of our Treasury bonds by foreign investors. They wouldn’t want to sell these bonds all at once, dumping us. That would be horrendous for the values of the bonds. They would all lose billions & billions of dollars. Similarly, dumping the U.S. dollar would hurt the countries importing to America, namely China and other low-cost producers. Not to mention all of the European importing countries and Japan.

Would you harm your biggest client? I don’t think they would either. Everyone sells to everyone in this global mix. So the international community has a vested interest in seeing a slow removal from the dollar. If there’s a removal at all.

What can an investor do? You can increase your international exposure. If you use mutual funds you can get many that are denominated in those foreign currencies. Not only would you be diversifying your portfolio you’d be creating some “currency insurance” within it, too.

Check out this article for another way to diversify out of the U.S. market and dollar: Investing In Stuff