Tag Archives: income

No Bull. Economic Weakness Continues To Pressure Corporate Profitability

Is the U.S. economy really in great shape? The U.S. Federal Reserve does not seem to think so. They started the year with an intention of raising the overnight lending rate four times – from 0.25% to 1.25%. In March, they announced that it would more likely be a mere two. And today, the Atlanta Fed downgraded its Q1 estimate for gross domestic product (GDP) to a new low for the year (0.4%). Granted, GDP for the fourth quarter of 2015 came in at a better-than-expected 1.4% after its third revision. However, that is significantly lower than the average economic performance since 2009 of 2.1%. And then there’s Gross Domestic Income (NYSE: GDI ). This measure looks at the income earned while producing goods and services (as opposed to measuring them on expenditures). GDI finished Q4 2015 at a sub-standard 0.9%, confirming widespread weakness. (Note: Theoretically, GDP and GDI should match one another, but they deviate due to different methods of calculation.) If one ignores the average rate of U.S. expansion in history, disregards the current 6-month slowdown in GDP/GDI, and overlooks the Federal Reserve’s emergency measures for monetary policy accommodation, one might applaud the economic “progress” made between 2009 and 2016. Conversely, realistic observers know that things are not that rosy. For example, U.S. government debt has swelled from roughly $11 trillion to $19 trillion. That’s a great deal of stimulus to keep the economy afloat. The Fed’s balance sheet has bloated from $800 billion to nearly $5 trillion. That’s an incredible amount of stimulus designed to bolster borrowing activity. Yet the big bang from the $12 trillion-plus injection is an economy that can barely hold its head above water. Apologists point to other data points that suggest the U.S. economy is dandy. “Robust job growth,” they say. Of course, they neglect to mention that low-quality positions in leisure, hospitality, retail and customer service account for most of the gains, whereas high-paying positions, particularly in manufacturing, continue to evaporate. That data shows up in average hourly earnings, where stagnation in wages are indicative of a shift toward lower-paying jobs with fewer hours. There’s more. Approximately 14 million jobs have been created since the end of the financial crisis in 2009. Sounds impressive, right? Unfortunately, the size of the labor force grew by roughly 16 million potential participants in the same seven-year period. Now we have 94 million working-aged Americans (16-64) who are not even counted in the labor force – those who have no job and who are not currently looking for a job. Granted, many younger folks are going to school and many older folks have retired. Nevertheless, the bulk of these 94 million individuals (16-64) simply believe that they do not have viable employment options. “But Gary,” you argue. “The economy here would be doing okay if it weren’t for the problems with overseas economies.” That may very well be true. On the other hand, this possibility only clarifies the fact that we live in a world that is more interconnected than ever before. Most of the world’s economies still depend on their product exports. It follows that when the world’s manufacturing is free-falling, the U.S. economy is going to feel it. “We are a consumption-based society with resilient consumers,” you respond. Unfortunately, the idea that resilient U.S. consumers can overcome global manufacturer woes is as erroneous as the notion that U.S. companies can escape the negative impact that weak currencies have had on corporate profits . They can’t and they aren’t. Global manufacturing woes have been adversely affecting the quality of the jobs that people have stateside. In fact, American consumer resilience is little more than “code” for acknowledging that we increase our debts at a much faster clip than we increase our take-home pay. Specifically, at the turn of the century, household consumer credit as a percent of average income had risen to 26%. Today? This percentage has jumped to 34%. Over-leveraged households imply that there will be some constraints on consumption, contributing to the overall weakness in the current economic backdrop. Think that the economic weakness is not going to have an impact on risk taking? Think again. Even the U.S. central bank’s about-face on rate hikes in 2016 – even the 14% surge in the S&P 500 SPDR Trust (NYSEARCA: SPY ) off of its mid-February lows – may not encourage as much “risk on” activity as many investors hope for. Consider the year-to-date performance of the FTSE Custom Multi-Asset Stock Hedge Index (MASH) as it relates to the S&P 500. MASH, with “risk-off” assets such as SPDR Trust (NYSEARCA: GLD ), Currency Shares Yen Trust (NYSEARCA: FXY ) as well as PIMCO 25+Year Zero Coupon (NYSEARCA: ZROZ ) and iShares National Muni Bond (NYSEARCA: MUB ) are collectively outperforming the stock benchmark with significantly less volatility. Click here for Gary’s latest podcast. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

GeoInvesting’s Dan David: 6 Things You Can Learn From My Shorting Mistakes

By Dan David, Co-Founder and VP of GeoInvesting Shorting stocks is rarely easy. In keeping with our practice to not only bring investors quality research, but also educate them, I wanted to run down some of the top mistakes I have made in the past when shorting stocks. If you are considering short selling or are already short selling, perhaps knowing the mistakes I’ve made in the past will help you become a better investor. Over the last seven years, our research-based, on-the-ground due diligence has led to over 10 U.S.-listed China-based stocks delisted or halted. In addition, we have exposed over 10 pump-and-dump stocks that have resulted in 90%+ gains for those who shorted them. Shorting U.S.-listed China-based companies can be grueling, mostly due to the fact that the companies you are up against can make up or fabricate information to combat your allegations. Many times I have opened a short position and have been immediately greeted by the company announcing a buyback or issuing a dividend in hopes of driving the short position out of the company. This happened when I shorted China Green Agriculture (NYSE: CGA ) in 2014, and management declared a special dividend. The issue is that some of these companies have stolen so much money from the capital markets through stock offerings that they have money to play with even when their companies are not generating real revenue. Shorting Stocks Opens You Up To Infinite Losses Shorting stocks is a far more inherently dangerous practice than going long companies, and there is more risk in being short. The most you can make when going short is 100%, but your loss can be infinite ( Remember KaloBios (NASDAQ: KBIO )?). Even if you are right, your short position can be forced to be closed. Furthermore, you can pay ridiculous amounts of interest, sometimes 100% per year, on the shares you have shorted. Apparently usury is not illegal in the stock market. As such, we wanted to lay out that risk here today. Here are some of the top mistakes I have made over the years short selling that hopefully you can avoid. Leave Your Emotions For Your Romantic Life, They Will Kill Your Portfolio This is a universal shorting rule, but must be said; take emotion out of it. It’s also one of the hardest rules. If you know you are right, dig deep inside and realize that when fraudulent stocks rally, they will likely eventually come down. One of the sickest feelings I have had is when I cover a rallying stock out of fear, only to see shares come right back down. Assuming That Insiders Will Not Lie Is Naive Failing to pay attention to insider ownership, which includes funds that have “special” relationships with management, is a mistake I made early in my investing career. The bigger the ownership, the more the chance that management will try to pump its stock by issuing false press releases in response to a short report. This has taught me to keep some powder dry for the pump. Know The Risks Of Being A Hero Be careful shorting shares of a state-owned enterprise (“SOE”). Accusing an “SOE” of fraud is accusing the China government of fraud. From my experience, the SOEs I have run into are frauds or at least have some material accounting misrepresentations, but the government will crush you before it ever admits that fact. Always have a second or third account to play the “PR pump.” Remember, a fraud can say anything since they have nothing to lose once they are exposed, so more often than not they will put out a PR pump to squeeze you and dump their shares. I learned the hard way that if you just cover and try to short again at the top, you will never find the borrow again. Go long in an alternate account to box your short. Putting Too Much Faith In The System Will Cost You Money Do not count on the exchanges to halt a security. In my view, as a matter of policy, both the NASDAQ and NYSE are hard pressed to halt. They have come to realize that the risk of a suit by the halted company is much greater than the risk of any individual investor – and lest we forget, the exchanges themselves are for-profit companies that are paid by companies they list. You also can’t count on the SEC to halt a U.S.-listed China-based company. The SEC has no power or resource to investigate inside of China. ‘Nuff said. Not Covering Enough Shares Ahead Of A Halt Trading halts have gone from a desired outcome for shorts to a nightmare for all. As I already touched on, brokers are now known to raise interest rates from the high teens to over one hundred percent during a halt on borrowed shares! This gives the halted company insiders the ability to collect on the majority of that interest from their broker on shares they lent out to be short, which acts as an incentive to insiders of halted companies to prolong a halt as long as possible. This new trading dynamic is causing chaos on both sides of the trade. Remember that shorting stocks is a volatile enterprise, and even experts have to expect the unexpected in situations where they are short. So, if you plan on involving yourself with this kind of investing, I hope that these tips and tools help you out going forward. This article originally published on geoinvesting.com on 3/29/16. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Are There Dangers In Not Diversifying Your Portfolio?

Originally published on March 15, 2016 When it comes to investing, the key for most people to make money is to avoid as much risk as possible. In order to accomplish this, it’s best that all investors decide to diversify their portfolios in all possible ways. However, while it may sound simple, diversification is anything but that. However, by following a few simple rules it’s possible to diversify one’s portfolio in such a way that avoids huge losses. Just What Is Diversification? Diversifying a portfolio is just as it sounds. Rather than put all their money into a particular stock, investors should always look to invest their money in as many different avenues as available. By doing so, they greatly reduce the risk of losses occurring due to their money being tied up in only one industry. While diversification does not completely guarantee against financial losses happening, it has proven to be the most useful tactic when it comes to making a person’s money grow. Various Types of Risk When investing in stocks , bonds, or other financial instruments, there is always a certain level of risk involved with the venture. However, by having a good understanding of these risks, investors greatly increase their chances of minimizing losses or having none at all. There are two major types of diversification, which are known as diversifiable and non-diversifiable. Non-diversifiable risk is that which is associated with any type of company or industry, such as inflation, cost-of-living, and political instability. This is considered the type of risk that cannot be avoided, so it must be weighed in relation to other risks as to how it will affect a portfolio. However, diversifiable risk is directly tied to an industry, company, or even a particular country. To avoid having issues due to this type of risk, investors should have various assets within their portfolios that all have different reactions to the same situation, which in turn will lead to a safer investment strategy. Be Open to New Strategies One of the biggest mistakes many investors make is having tunnel vision when it comes to their investing strategies. When this happens, they often experience larger losses in their portfolios than other people who have spread their money around to many different places. Not only should a person not invest solely in one company, but they should also be careful not to invest in companies or industries that have a strong correlation to one another. If this happens, the likelihood of losses increases substantially. Opposites Attract Not only do opposites attract when it comes to love, but to diversifying as well. Along with being open to new strategies, it’s also advantageous for investors to look for various asset classes that tend to move in opposite directions. A great example of this is stocks and bonds, which while related tend to go in opposite directions almost daily. This allows them to offset the unpleasant moves of one asset class with the positive ones of another, which over time will keep a portfolio far less vulnerable to market swings. As a general rule, investors who are just beginning to put together their portfolios are almost always advised to include bonds, which tend to offset any losses sustained with stocks. There Are No Guarantees While diversifying a portfolio does not automatically guarantee investment success, it has been shown to increase the likelihood of positive returns over time. However, it’s important to note that even if your portfolio is correctly diversified, some risk can never be eliminated . This is where we talk about over diversification. This is a big problem that big investors, and experts warn others about, because it has the potential to undo all your efforts. It’s common consensus that wide diversification within your portfolio can cause investing to be more confusing than it normally would be, since you have so many eggs in so many baskets. Understanding that there is a point at which the benefits of diversification stop reducing risk, and instead start eating away at investment returns is crucial, otherwise, you’re just stuck with a hodgepodge mess of a portfolio. When it comes to reaching one’s financial goals, virtually every investor has their own set of unique plans. Most financial planners agree that investors who don’t let themselves get too high or too low depending on the market conditions will always do best, while others who invest too heavily in one direction often run into problems. By taking diversification seriously and taking the time to learn about the benefits associated with it, investment success can be had. This guest article was written and provided by Accuplan Benefits Services, a self-directed IRA administrator.