Profit From Fear


Fear is pushing the US stock market higher.

stock market

Stock markets are up but interest rates have crashed to the and through the floor.

In many countries the interest rate is below zero.  Investors pay to hold bonds in many currencies.

This current global economic scenario is one that I don’t think we have ever stumbled across before.

Fear is creating a bull stock market, but normally fear pulls markets down.

It’s greed that pushes them up.

Normally fear based appreciation is only very short term and comes via hoarding… when panic is the ruling emotion.

The fear is caused by low interest rates.  Investors fear that their money will not keep pace with inflation. 

We should never count on extraordinary returns.  A key to good investing is to be realistic.

Yet we should expect something for our capital… enough to counter inflation at least.

Realistic thinking is one of the most important assets we can have as investors, yet it is easy to apply short term economic data to understand long term trends.  When this happens our conclusions can be unrealistic.

By the way….in some instances, 50 years can be short term.

My realization that economics might be different began when I was watching low interest rates in December 2015.   The interest we could gain on our savings had plunged due to the Great Recession.

A New York Times, article at that time, “Low Interest Rates May Stick Around” (1), gave me glimpse of the long term US dollar, interest rate history.  This review suggested that those who began investing in the 1960s or later (aka me), may have had a distorted understanding of interest rates.   We expected interest rates to be too high.  Our thinking might have been, “I can’t wait for interest rates to return to normal.”

The article included the chart below.

wsj.com

The theme of the article was that dollar interest rates (in 2015) may have been closer to the norm than during a 50 year high rate aberration.

This suggested that my base of understanding gained from investing through 50 years of of interest rates, may have been  unrealistic.

It was!  My understanding of interest rates was way off in 2015.  Interest rates globally were going to fall further rather than rise.

In much of the world, interest rates have fallen BELOW zero.  In the US they are around 2%.  The difference between interest rates in other currencies and the higher US rate has pushed the US dollar and US stock markets so high that they are a bad value.

Yet we as investors have nowhere else to go.

The September 2019 Advisory Extra Report (2) looked at the global low interest rate phenomenon.

ENR Asset Managers is one of the very few SEC registered investment management companies that can help US investors bank and hold assets with non US banks.  The Advisory Extra is produced by ENR for its largest clients and is only available to these large clients and our Purposeful Investing Course (PI) subscribers.

This month’s ENR Advisory delves into this problem of low interest rates in its feature review entitled: “The ‘Swissification’ of Bond Markets Coming Soon to U.S. Shores”.

The advisory says: With approximately one-third of the world’s sovereign government bonds now yielding a negative interest rate, investors are scrambling for a positive yield.

Amid a secular U.S. dollar bull market since late 2011 combined with a meltdown in major government bond yields since this summer, global investors are lunging after one of the few remaining positive-yielding bond markets – U.S. Treasury securities and corporates.

The inversion of the U.S. yield curve started last year and has since spread more meaningfully since spring when 90-day Treasury bills began to yield more than five and ten-year T-bonds. By summer, a full inversion included the widely followed 2s and 10s, meaning two-year T-bonds began to yield more than ten-year T-bonds. The anomaly has spooked the stock market ever since, including two big market plunges in August.

I have created a three part report on what to do about low interest rates because seeking value in investing and business is a key to gaining profit from the low interest rate fear.

Here are seven important rules for value investing.

#1: We know less than we think we do.  That’s OK.

#2: Risk is our partner.  Embrace it.

#3: Truth is not created by repetition of an error.

#4: Don’t care too little about strategy.  Don’t care too much about daily volatility.

#5: Do not underexpose yourself for the long term.  Don’t make too many short term decisions and not enough long term decisions.

#6: Don’t count on extraordinary returns.

#7: Look for contrasts & trends that create value.

The fact that there is always something we do not know creates the great enemy of good investing… worry.

A poll of 3,257 people by Allianz Life Insurance Co. of North America found that 92 percent agreed that the United States is facing a crisis in its retirement system. The respondents aged 44 to 54 said they worried that they won’t be able to cover basic living expenses in retirement.

This issue is complicated by the deterioration of private investments and savings. Investors who were burned by the stock market correction of 2008 worried so much about losing more that they did not stay in and ride through the storm or reenter after the correction had bottomed. As a result, these investors haven’t seen much increase in the value of their assets, except maybe the price of their home. House prices have increased since the recession, but not necessarily enough to retire on.

Adding to the trauma is the economy’s low interest rate environment. Savers can’t earn much of a return in savings or bonds, because interest rates are at record lows to stimulate economic growth. Investors used to be able to earn 4% to 6% without great risk. Now they earn much less and are living longer, so they will need their money to last longer. The low interest rates and high Wall Street prices have many worried.

Eliminate worry with the value of value.

Normally when great value is offered in markets, the smart investors ease in.

Most investors however jump into poor value markets that look good in the short term.  Now the coincidence of high US share prices and low interest rates have created a fear driven bull market.

The silent panic driving share prices up continues to strengthen the US dollar which is why you and I can enjoy prosperity during these times of rapid change.  We can increase the value of our savings and investments by diversifying in good global value equity markets now.

Part II of this report comes Saturday, September 14, and looks at why interest rates are likely to fall even further and has three tips on how to profit from this fact.

Gary

Gain From Election Volatility

Here we are again… another election on its way… all the robo calls from politicians… the dirty tricks and the innumerable amounts of nonsense this vital process brings.

However America’s politics turn out, one thing is sure.  There will be volatility in stock markets during the election process.

The first reason markets will bounce has nothing to do with politics or policies.   A market correction is due regardless of the party or the person in office.

Second the new politics has created an uncertain era.  Everyone has been shaken over the past three years whether they are pleased with the government or not.

Nothing frightens markets like uncertainty.

Third if we see rising interest rates, this will push markets down.

Despite these pitfalls, there is a way to profit using the strong US dollar and undervalue non dollar stock markets to pick up good value shares.

During nearly five decades of global investing I have noticed found that good value strategies are the best way to profit long term, through good politics and bad.  The steps to take are simple.

The first tactic is to seek safety before profit.

We can look at Warren Buffett’s investing strategy as an example.  Buffett success is talked about a lot, but rarely does anyone explain how he make so much money.  That was the fact until some researchers really stripped his operation bare.  They looked at everything and learned the deepest of Buffett’s wealth management secrets.  Fortunately they published all in a research paper at Yale University’s website. that reveals important truths about extending wealth.

This research shows that the stocks Buffett chooses are safe (with low beta and low volatility), cheap (value stocks with low price – to – book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios).

The second tactic is to maintain staying power.  At times Buffet’s portfolio has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of outperformance to 70%.

However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio the better the odds of outstanding success.

The Buffett strategy integrates time and value for safety and profit.

A third tactic is using limited leveraging, tactic in the strategy boosts profit.  Buffett leverages his portfolio at a ratio of approximately 1.6 to 1.   The Yale published research paper shows the leveraging methods used by Warren Buffett to amass his $50 billion fortune.  The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more.  The research shows that neither luck nor magic are involved.  Instead, the paper shows that Buffet’s success hinges on using leverage at the rate of 1.6.

To sum up the strategy, Buffet uses limited leverage to invest in large purchases of “cheap, safe, quality stocks”.  He limits leverage so he can hold on for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.

Stated in another way buffet uses logic (buy good value) to have the conviction, wherewithal, and skill to invest with leverage over many decades.

What do we do when we are not Warren Buffett?

May I introduce the Purposeful Investing Course (Pi) for those who want to invest like Warren Buffet, but know they are not.  This course is based on my 50 plus years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Enjoy Extending Wealth

Pi’s mission is to make it easy for anyone to create a three point strategy, like Buffett’s even though they do not have a lot of time for or knowledge about investing.

Pi reveals investing secrets and the sciences that make investing easy, safer, less time consuming and increases the chances of profit.

One secret is to invest with a purpose beyond the cash.  One tactic as mentioned is staying power.  This means not being caught short and having to sell during a period of loss.  This also means having enough faith in a strategy that we stick to the plan.  When we invest with purpose, doing what we love, we enjoy the process more and are more likely to hold on during down times, when most poor investors panic and sell.

Slow, Worry Free, Good Value Investing

Stress, worry and fear are three of an investor’s worst enemies.  They create the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market sector they choose.  The behavior gap is created by natural human responses to fear.   Pi helps create profitable strategies that avoid losses from this gap.

Spanning the Behavior Gap

Behavior gaps are among the biggest reasons why so many investors fail.  Human evolution makes fear the second most powerful motivator.  (Greed is the third.)  Fear creates investment losses due to behavior gaps.  Fear motivates us more strongly than desire.  By nature investors are risk adverse.

Winning investors though embrace risk because they have a plan based on good value.

Purpose is the most powerful motivator,  stronger than fear and greed, so a strategy with purpose is the most powerful of all.

Combine your needs and capabilities with good value secrets and the math to back up your value selections through the Pifolio – The Pi Model Portfolio

Lessons from Pi are based on the creation and management of a Primary Pi Model Portfolio, called the Pifolio.  There are no secrets about this portfolio except that it ignores the stories (often created by someone with vested interests) and is based entirely on good math.

The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets using my (almost) 50 years of global experience and my study of the analysis of four mathematical investing geniuses (and friends).

The Pifolio analysis begins with a continual research of international major stock markets that compares their value based on:

#1:  Current book to price

#2: Cash flow to price

#3: Earnings to price

#4: Average dividend yield

#5: Return on equity

#6: Cash flow return.

#7: Market history

We follow this research of a brilliant mathematician and have tracked this analysis for over 20 years.    This is a complete and continual study of international major and emerging stock markets.

This analysis forms the basis of a Good Value Stock Market Strategy.   The analysis is rational, mathematical and does not worry about short term ups and downs.   This strategy is easy for anyone to follow and use.  Pi reveals the best value markets and provides contacts to managers and analysts and Country Index ETFs so almost anyone can create and follow their own strategy.

A country ETF provides diversification and cost efficiency by spreading one simple, even small investment into a basket of equities in a good value stock market.  The costs are low and this type of ETF is one of the hardest for institutions to cheat.  Expense ratios for most ETFs are lower than those of the average mutual fund.

Little knowledge, time, management or guesswork are required.  The investment is simply a diversified portfolio of good value indices.  Investments in an index are like investments in all the shares of a good value market.

Pi matches this mathematical certainty with my fifty years of experience. This opens insights to numerous long term cycles that most investors miss because they have not been investing long enough to see them.

For example in the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  Then the cycle ended.  Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview.  He said:  Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!

I did well then, but always thought, “I should have invested more!”  Now those circumstances have come together and I am investing in them again.

The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.

The two conditions are in place again!  There are currently ten good value (non US) developed markets,  plus 10 good value emerging markets.

Pi shows how to easily create a diversified, worry free portfolio in some of these good value markets using Country Index ETFs.

The current strength of the US dollar is a second remarkable similarity to 30 years ago.   The dollar rose along with Wall Street.  Profits came quickly over three years.  Then the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  There is so much more to write and the trends are so clear that I have 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.  I kept the report short and simple, but included links to 153 pages of  Good Value Stock Market research and Asset Allocation Analysis.

The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

This report sells for $29.95 but you’ll receive the report “Three Currency Patterns For 50% Profits or More” FREE when you subscribe to Pi.

Leverage

Pi also explains when leverage provides extra potential without undo risk.  For example in 1986 I issued a report called “The Silver Dip” that showed how to borrow 12,000 British pounds (at almost 1.6 to 1 dollars per pound the loan created US$18,600) and use the loan to buy 3835 ounces of silver at around US$4.85 an ounce.

Silver had crashed, I mean really crashed from $48 per ounce.  As prices decreased from early 1983 into 1986, total supply had fallen to 449.7 million ounces in 1986.  Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986.  Secondary recovery also was constricted by these low prices.

Then silver’s price skyrocketed to over $11 an ounce within a year.  The $18,600 loan was now worth $42,185.

The loan was in pounds and in May 1986 the dollar pound rate was 1.55 dollars per pound.  So the 12,000 pound loan purchased $18,600 of silver.  The pound then crashed to 1.40 dollars per silver.  The loan could be paid off for $13,285 immediately creating an extra $5,314 profit.  The profit grew to $47,499 in just a year.

Conditions for the silver dip have returned.  The availability of low cost loans and silver are at an all time low.  The price of silver has crashed from nearly $50 an ounce to below $14 as did shares of the iShares Silver ETF (SLV).

finance.yahoo.com chart SLV

iShares Silver Trust (symbol SLV) from www.finance.yahoo.com

Imagine investing in a spike like this… with leverage!

At the same time the silver gold ratio hit 80, a strong sign to invest in precious metals.

I have updated a special report “Silver Dip 2019” about a leveraged silver speculation that can increase the returns in a safe portfolio by as much as eight times.  The purpose of the report is to share long term lessons gained through 30 years of speculating and investing in precious metals.  While working on the report, when the gold silver ratio slipped to 80 and the price of silver dropped below $14 an ounce, I knew I needed to share this immediately.

I released a new report “Silver Dip 2015” so readers were able to take advantage of these conditions and leverage 1.6 times as a speculation.  That report generated profits as high as 212% and a revised 2019 issue has been produced.

“The Silver Dip 2109”  sells for $39.95 but  you receive  “Silver Dip 2019” FREE when you subscribe to Pi.

Save

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.  Plus you receive the $29.95 report “Three Currency Patterns For 50% Profits or More” and the $39.95 report “The Silver Dip 2019” free.

Triple Guarantee

Enroll in Pi.   Get the first monthly issue of Pi, and the report “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2019” 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 purposeful 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:  I guarantee you can keep “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2109” report as my thanks for trying.

You have nothing to lose except the fear.   You have the ultimate form of financial security to gain.

Subscribe to the Pi for $197.   You Save $158.95.

Gary

 

 

 

(1)  www.nytimes.com why very low interest rates may stick around

(2) ENR Asset Management