Economic Cyclical Danger


The time has come to review the economic cycle.  Many economic events suggest we are seeing a shift in the economic cycle.

market-value

There are three phases in the economic cycle;

Phase I:  Recession

Lower Inflation Expected
Interest Rates Come Down
Depressed Demand
Rising Unemployment
PE Multiples Contract

This phase which we saw in 2007 and 2008 is an ideal time to invest in bonds.

Phase II:  Recovery

Inverted Yield Curve
Rush for Liquidity
Authorities Relax Money Supply
High Unemployment
High Level of Uncertainty

This phase which began in 2009 is an ideal time to invest in shares.

Phase III: Boom

Rising Inflation
Short Rates Pushed Up
Bond Yields Rise
Falling Unemployment
PE Multiples Expand

There are many signs that the economy is transitioning into this phase.  This phase is an ideal time to invest in cash and short term investments.

wsj graph

The chart above is from a recent Wall Street Journal article “Economy Up, Stocks Down? Don’t Be Surprised!” (1).  This article outlines one reason why there is increasing danger of a stock market correction.

The article says:  Investors bullish about a Trump capital expenditure boom must realize that buybacks, one of the bull market’s drivers, may suffer.

Weak corporate investment has been one of the economy’s great flaws. An expected boost in capital spending—driven by rising confidence, stronger profits and tax reform—is one reason the stock market has soared.  But investors are confusing the benefits that rising spending would bring to the economy with its short-term impact on the stock market. A boom in corporate investment could be a drag on stocks.

As the economy struggled to grow, companies lacked the confidence to write big checks, except when they bought competitors. Instead they have been purchasing their own shares furiously. Companies in the S&P 500 have spent more than $2.5 trillion on share buybacks in the five years through 2016’s third quarter, according to FactSet. In the third quarter of 2016 alone buyback champs Apple Inc. and General Electric Co. repurchased $11.5 billion worth of their shares combined.  Yet the third quarter marked the second consecutive period of declining buybacks compared with a year earlier. In dollar terms, the drop was the largest since 2009, and it could get worse if more cash is diverted to new factories and equipment.”

However… in this boom phase there are better options due to the lack of synchronicity in stocks markets.   When the US market drops other stock markets can rise.   In fact many investors fleeing the US dollar or US stock market can cause other markets to rise.   These investors sell US shares and put the money in non dollar stocks

Take extra steps during inflationary times. Cash can be a really lousy idea.

Warren Buffet mentioned this problem when he said: Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long.  Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted.  They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

An alternative in Phase III is good value non US dollar stock markets.

When you invest in good value, you put the most basic power  to work to increase your savings and wealth.   This power creates wealth based on when you buy, not when you sell.   The purchase price of your investments are the main factor that determines your profit later on.

You can’t just rely on an appreciating market or wishful thinking to create profit, especially when the market is at a frothy all time high.  Share prices can collapse at any hour now.

The value of stocks is based on dividends, and long-term increase in value.  Value is based on total long term returns.   Value is created when well-run companies with strong finances and a history of shareholder-friendly management practices can be purchased at lower price than competitors and at a price lower than is usual.

There are only two ways to build your wealth in the stock market: You profit when share prices rise.  Over the long-term, share price rise because business grows or shares are repurchased.  You profit from dividends.

Good value shares are those that have the most profits and pay the highest dividends at the lowest price.   This is why we track the value analysis of Keppler Asset Management.   We can what value means in Keppler’s latest quarterly valuation of developed stock markets.

keppler

Which would you rather own, a portfolio that pays a dividend of 3.44% per annum purchased at 1.79 times book value (the MSCI European Index) or a portfolio  that pays 2.07% per annum and was purchased at 2.89 times book value (MSCI US Index)?

Innumerable factors, such as the economic cycle cause share prices to fluctuate up and down short term.  Long term, only one factor is the motivator of price, value.

US equity markets have risen to all time highs.  Better values in overseas developed stock markets have grown.  The economic cycle is making the US market riskier and the good value markets even  more special now.

See below how to develop slow moving, good value portfolios, that reduce time, effort as they increase profitability and safety.

Gary

WSJ.com:  Economy up stocks down don’t be surprised

“If I Live Long Enough, I’ll Really Cash In Next Time”

Periods of good investing performance are always followed by periods that are bad.

Think about this…

The US dollar has risen over 50% above its lows of 2011.   The greenback is at its highest level versus the Chinese yuan since 2008.  India’s rupee is at an all-time low against the buck.  Other Asian currencies, the Singapore dollar and Malaysian ringgit have plunged to depths not seen since the financial crisis of 1997-98.  The euro, Mexican peso and Canadian dollar have crashed.  In other words, the US dollar is in a period of high performance.

What happens is the greenback is in a free fall.  Smart investors can cash in huge profits.

Yet there is a bigger economic problem that can ruin the purchasing power of your cash faster than you can imagine.

While the dollar was rising non US governments and businesses accumulated almost ten trillion dollars of debt denominated in US dollars.

The terror in this debt is that it acts as a destructive and very rapid financial amplifier.  Dollar debt is like a short position.  When the dollar rises, borrowers scramble to short-cover their position by selling their own currency.  This defeats the purpose of their hedging as it increases the strength of the dollar.  So they short even more.  Those short sales create an upward dollar spiral.  The buck rises higher and higher, based entirely on fear and speculation.

When that leverage energy is spent the currency stalls and plummets out of control… like now.

The last time we saw such a upwards spiral was from 1980 to 1985.  The dollar rose 50% in those five years.

Guess what?

Then it collapsed 50% in just two years.

The US dollar is in a similar position as at the beginning of Ronald Reagan’s first term in the 1970s.  This was a time of widening budget deficits, rising interest rates and a US dollar surge.  This created a problem then, as it does now, and creates huge opportunity for those in the know.

The rise of the dollar, the debt and the US stock market creates an especially dangerous conflict because Donald Trump wants to balance America’s trade.  A stronger dollar makes this impossible because it pushes up the cost of US material, US labor and US exports.

The overpriced dollar, the poor value of the US stock market (compared to other markets) create a dollar crisis and a special opportunity for you and me as investors.

“If I Live Long Enough, I’ll really cash in next time”.    I made this promise to myself in the 1980s.   A remarkable set of economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  I invested as much as I could handle then as the profits rolled in for about 17 years.  I had wished I could have invested more.

Now those circumstances are here again.

And I have…

invested more… a lot more… betting again the dollar.

The swollen stock market prices, huge dollar denominated debt and weakening dollar are three patterns that can create a fast 50% profit.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  The trends are so clear that I created a short, but powerful report “Three Currency Patterns For 50% Profits or More.”   This report shows how to earn an extra 50% from currency shifts with even small investments.

There is a way to accumulate good value equities denominated in the following currencies of special strength, including the Euro, Canadian dollar, Singapore dollar, British pound, New Taiwan dollar and Chinese yuan.

The report reveals 21 special non dollar equities that have the greatest opportunity for safety and appreciation.

I kept the report short and simple, but include links to 153 pages of global stock market and asset allocation analysis so you can keep this as simple or as complex as you desire.

The report shows 22 good value investments and a really powerful tactic to use that allows you to inexpensively accumulate these bargains now even in very small amounts (even $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

Research shows that most people worry about having enough money if they live long enough.   I never thought of that.   I just wanted to live long enough to see the remarkable economic opportunity that started in 1980 come again so I could hit the jackpot.  This powerful profit wave has begun.  I have made the investment myself  suggest you investigate this in my report “Three Currency Patterns For 50% Profits or More.”

Order the report here $29.95

My Guarantee

Order now and I’ll email the online report “Three Currency Patterns For 50% Profits or More” in a .pdf  file right away. 

I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free purposeful investing.  If you are not totally happy, simply let me know within 60 days and I’ll refund your subscription fee in full, no questions asked.

You can keep the report “Three Currency Patterns for 50% Profits or More”  as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Order the report here $29.95

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