Trade War Opportunity


Last week we showed subscribers to our Purposeful Investing Course  (PI) a way to gain from the US China trade war.

The Advisory Extra report produced by ENR Asset Management (1) shows a special growing opportunity in Southeast Asia.  That advisory is only available to these large ENR clients and PI subscribers.

I have worked with ENR for decades and especially now, as they are one of the very few SEC registered investment management companies that can help US investors bank and hold assets with non US banks.

One feature in the July Advisory looks at the opportunity we can gain from the US China Trade War.

The reports says:  Historically, tariffs don’t benefit anyone; the last time nations employed broad-based tariffs in the 1930s, the resultant economic results were devastating as hardship prevailed across the United States and Europe leading up to WW II. The Hawley-Smoot Tariff Act was signed into law in June 1930 and raised U.S. tariffs on over 20,000 imported goods. By 1933, nearly half of America’s banks had failed and unemployment was approaching 15 million people or 30% of the workforce. The rest of the world also suffered as global GDP plummeted.

Manufacturing Shifting to ASEAN

A recent report from New York Federal Reserve economists, together with U.S. import data, suggests regional neighbors in Asia will benefit from the growing shift away from manufacturing in China. Both sides will pay for a trade war. China’s won’t export as much while U.S. consumers will face higher prices. The real winners are China’s competitors in Asia: South Korea, Taiwan, Vietnam and other countries in the region.

Ten nations form the Association of Southeast Nations or ASEAN. They include Brunei,Cambodia, Indonesia, Lao, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

ASEAN is a $700 billion-dollar economic bloc in a market supported by more than 500 million people. It’s an export powerhouse. Add Taiwan and South Korea and it’s even more formidable.

Bullish on South Korea & ASEAN

But South Korea is especially compelling because it’s the cheapest bourse in the region and long neglected by global investors as the KOSPI Index in Seoul trades near a ten-year low. The United States isn’t bashing South Korea on trade. In fact, it’s benefiting from the U.S.-China trade conflict as manufacturing giants like Samsung Group, Hyundai Motor and SK Holdings steal market share. Combined with an undervalued South Korean won, stocks in South Korea represent among the best values in the world and are primed to benefit from a secular manufacturing shift from China to other competitors in the region. And South Korea, after China and Japan, is the third-largest economy in Asia. It punches some serious export weight.

The iShares MSCI South Korea Capped ETF (NYSE-EWY) trades 23% off its best level last year and placed a double-bottom recently. EWY has gained just 2% in 2019, lagging regional peers. The Index fund holds 114 South Korean large and mid-sized companies (dominated by Samsung Electronics at 24%) and trades at a mild 0.27% discount to its net asset value.

The advisory recommends “BUY the iShares MSCI South Korea Capped ETF (NYSE-EWY) at market up to $65. Place a 25% stop-loss on your entry price.

This ETF (dark blue in charts from www.finance.yahoo.com below) has strongly outperformed the S&P 500 index (light blue) and Nasdaq (purple) exchanges long term.

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Over the past five years the iShares MSCI South Korea Capped ETF (NYSE-EWY) has under performed both the S&P500 and NASDAQ  (purple) indices.

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South Korea is one of five Asian countries in my portfolio that Keppler ranks Top Vlaue.

My portfolio and The Pifolio we track in the Purposeful Investment Course currently holds country ETFs for these five Asian countries that might gain from the US-China trade war:

7.6% of portfolio in iShares MSCI Singapore Capped ETF up17.2% since the Pifolio’s inception December 2105.

1.5% iShares MSCI Malaysia New ETF down 30.0% since the Pifolio’s inception December 2105.

2.3% iShares MSCI South Korea Index ETF up 8.8% since the Pifolio’s inception December 2105.

The Pifolio also holds two ETFs representing indices in the Keppler Good Value Developed  Markets

7.2% iShares Msci Japan New ETF up 11.0% since the Pifolio’s inception December 2105.

2.7% iShares MSCI Taiwan Capped ETF up 28.1% since the Pifolio’s inception December 2105.

The downside from an economic point of view is that the Pifolio also has 8% of its makeup in the iShares FTSE/Xinhua China 25 Index Fund up 6.9% since the Pifolio’s inception December 2105.

The Pi strategy is to hold equal amounts of country ETFs in good value markets at a 70% (developed market), 30% (emerging market) ratio.   The only variation my Pifolio has is that it treats China as a developed market, rather than an emerging market.

We as consumers will not benefit from a US China trade war.  We’ll pay more for the products we buy that are manufactured in China.  We can offset this problem by investing in the Southeast Asian opportunity as manufactures shift from China to other Asian countries.

Gary

The Only 3 Reasons to Invest

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The stock market has always been the best place of places to protect and increase wealth over the long haul.   Yet it’s also been the worst place to lose money, a lot of it, quickly.

There are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We invest to make our world a better place.

The goal of investing should be to stabilize our security, bring feelings of comfort and elimination of stress!

We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.

This is why my core stock portfolio consists of 19 shares and this position has hardly changed in three years.  During this time we have been steadily accumulating the same 19 shares and have traded only three times.

A model portfolio that dates back to 1969 has dramatically outperformed almost every stock market in the world.

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A hundred US dollars invested in that portfolio in 1969 is now worth $44833 compared to $100 invested in an equity weighted world index being worth $11,548.

This portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi).  I call these shares my Pifolio.

This portfolio more or less matched the S&P 500 until May 2018.  Then a stronger US dollar made the portfolio look like it was falling behind.   This currency illusion creates a special opportunity we’ll view in a moment.

This portfolio above is based on stock price to value analysis built around 91 years of stock market data.

The value analysis is used to create a portfolio of MSCI Country Benchmark Index ETFs that cover  stock markets that are undervalued.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage over $2.5 billion of funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) and most of his funds registered for the European Union, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael about 25 years ago, so I am one of the few Americans who receive this data and you will not find his information readily available in the US.

In a moment you’ll see how to remedy this fact.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  Then Keppler takes market’s history into account.

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Michael Kepler CEO Keppler Asset Management.

Michael’s analysis is rational, mathematical and does not cause worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) market.

This is an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment.  This eliminates the need for hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2020.   There have been no changes since.

70% is diversified into Keppler’s good value (BUY rated) developed markets: China, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.

iShares Country ETFs make it easy to invest in each of the MSCI indicies of the good value BUY markets.

For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF  that tracks the investment results of the MSCI Germany Index. The fund is at all times invested at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for every market in our Pifolio.

This year I celebrated my 52nd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

How you can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (PI).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.

Triple Guarantee

Enroll in Pi.  Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past three years, two more reports on investing (described below) and an online Value Investing Seminar right away. 

#1:  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, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar 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.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.This year I celebrated my 51st anniversary of writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special seminar session looks at how to spot value from cycles.  Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

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The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Save $102 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years,  right away. 

#1:  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, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the reports 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.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Your subscription will be charged $99 a year from now, but you can cancel at any time.

Gary