#10. Aberdeen Asia Pacific Income Investment Co. Ltd. (TSE:FAP.CA) — 9.9% YIELD

At #10, Aberdeen Asia Pacific Income Investment Company is a closed-end investment company. Co.’s investment manager is Aberdeen Asset Management Asia Limited, which provides investment services.

“The risk is quite high over the coming summer months,” Jason Goepfert told me yesterday. 

“For investors, I wouldn’t want to make any more additional purchases right now,” he continued. “I would hold back a little bit.” 

When Jason talks, I listen… 

I rely on Jason – more than anyone else – to help me figure out whether investments are “hated” or not… 

Long time readers know that I want to buy “hated” investments. But how do I define hated? What do I look for? And how do I track it? 

My go-to source for these answers for years has been Jason Goepfert of SentimenTrader.com. 

Jason shared some key insights with me yesterday… and I wanted to pass those along to you today…

Jason tracks investor sentiment. He looks for times when investors are extremely optimistic (so he can sell), or when investors are extremely pessimistic (so he can buy). 

Right now, in the U.S. stock market, investor sentiment is becoming overly optimistic. And when you see that, typically the upside potential won’t be good over the next few months. Specifically, Jason has a 1-10 scale of stock market “risk.” And right now, he says the risk level is 7 – “well above average.” 

What does that mean? “At a risk level of 7, stocks have returned 1.1% on average over the following three months,” he explained. “For comparison, when the risk level is at 3, stocks have returned 5.4% on average over the following three months.” (That’s based on 10 years of data.) 

When the risk level is at an extreme – in the 9 or 10 range – you lose money, on average, over the next three months. We are not at an extreme – yet. 

I asked Jason what he looks at to determine whether investors are optimistic or pessimistic. He said he looks at two types of indicators: 

• What people are saying (typically sentiment surveys).
• What they are doing (what real money is doing).

He says the “real money” gauges are typically more useful because “people don’t always do what they say they’re going to do in a survey.” 

So when you see an extreme in sentiment, what happens next? How quickly do you need to act?

I thought Jason’s answer was interesting… 

“Bottoms usually are immediate. When it’s that panic phase, everybody is selling. So when those indicators trigger an extreme, typically the market will bottom within days.” 

“Looking at tops is much more difficult… The sentiment extreme typically starts to take effect in one-to-three months’ time.” 

In my opinion, Jason Goepfert is the best at what he does. I personally rely on his work. 

Right now, Jason says that – based on his main sentiment gauge – the risk is “quite high.” 

I wouldn’t bet against him… 

Good investing, 

Steve 

P.S. If you have a serious interest in learning more about investor sentiment, I highly recommend you check out his site, www.SentimenTrader.com. The service is fantastic, and it’s significantly underpriced for the quality of work he does.

MARKET NOTES 

THE “OTHER” PRECIOUS METAL LEADS THE PACK 

Mention “precious metals” to friends and they’re likely to think of gold and silver… maybe platinum.

 

Gold, silver, and platinum are the most popular precious metals. They’ve gotten all the attention in the media… And they’re the metals of choice for fine jewelry. But the “other” precious metal – palladium – has been a much better investment over the last three years.

 

Palladium is an “industrial” precious metal… And it’s utilized in a lot of the same ways as its more expensive counterpart, platinum. Most often, palladium finds its best use in catalytic converters… But it’s also useful in dentistry, electronics, and oil refinement.

 

Over the past three years, the “big three” precious metals have been poor investments at best. But a quick look at today’s chart shows palladium has held steady… And over the last few months it has started a clear uptrend into positive territory. Don’t be surprised to see the “other” precious metal continue to be a winner.

 

We have talked about what is negative for the US stock market.  From the signal in the banks vs. S&P 500 to a young uptrend in long-term T bonds vs. the S&P 500.  Here is the 2011-2014 market leading BKX-SPX in breakdown mode.

Throw in a bearish divergence in the Equity Put/Call ratio, an elevated Gold-Silver ratio right at resistance and Junk bond vs. Treasury/Investment Grade and the signs of a bearish market are not only there, they have manifested in some pretty good downside in the growth and momentum areas.

But aside from the Dow and Tranny already noted, there are other things that bears should pay attention to, starting as we often do with the Semiconductor index.

….read & view more HERE

According to Goldman Sachs analysts over the next five years, Millennials, those born between 1980 and 2000, will be the largest contributing cohort to consumer staples and discretionary spending.

“With the purchasing power scales now tipping in millennials’ favor, we expect the disruptive impact of their ascent will be an important hallmark of the next 5 years,” writes Lesley Drucker Mann.

Drawing on Millennials’ economic and behavioral characteristics, Mann has identified eight trades…..

CLICK HERE to see all eight trades

….plus Market Insight: Small Caps Break Down by Chris Hunter

True Confessions of a Newsletter Guy…

When we turned the lights off on Friday, the Dow was hitting a new high. But US small caps and the tech-heavy Nasdaq are not faring so well. (More on that from Chris below…) 

We gave you a rare recommendation on Friday: Buy Russian gas giant Gazprom OAO (PINK:OGZPY). 

Who knows? But with a trailing 12-month price-earnings ratio of 2.7, it looked like a Mother’s Day gift to us. By contrast, the US Internet sector appears to be a kiss of doom – the kind of smooch that would make your face itch. 

Last time we looked, Amazon.com – the “river of no returns” – was trading on a trailing 12-month price-earnings ratio of 454 and had earnings per share of just $0.64. Compare that with Gazprom, with its P/E of just 2.7 and earnings per share of 106 rubles – or $3. 

Put one beside the other: Amazon.com is almost all P. Gazprom is almost all E. All things considered, we’d rather have the E.

But Amazon.com is not the only tech star to be all P and no E. 

Our younger friends tell us Facebook has revolutionized the way they get information. They no longer go to newspapers or news sites; they get their news, opinions, and misinformation from Facebook. 

Maybe so, but it looks more like a big time waster to us. And it’s trading at 76 times trailing 12-month earnings. Profits would have to go up 700% before the P/E ratio came down to a reasonable level. Or… the stock price would have to fall by 80%. 

One of those two things will happen, sooner or later. Our guess is that shareholders won’t like it when it does. 

And how about LinkedIn? 

We used the service, briefly. It was supposed to be handy for making business connections. Did we give up too quickly? Maybe. But at 749 times earnings, it would have to get us an audience with the pope… or a date with Beyoncé… to justify the price. 

At least Amazon.com, Facebook and LinkedIn have some earnings… however small. Many of these high-flying tech companies enjoy the incredible lightness of having no federal income tax to pay. Online business directory Yelp, for example, has a market cap of more than $4 billion. But it earns nothing after costs – zero… zilch… nada. It’s priced at about 18 times sales… and more than 1,000 times EBITDA. Real estate site Zillow trades at 16 times sales. 

If the prices of these tech companies weren’t enough to scare you away, consider the control issue. Last week, the media reported that Twitter’s stock price has been cut in half this year because of “insider selling.” 

Wait a minute. How come the insiders were selling? Didn’t they have faith in their own company? And how did they get so many shares in the first place? 

Oh, dear reader, you can be so naïve sometimes. 

Both government and Wall Street are run for the benefit of insiders. You should know that by now. What enterprise isn’t? 

Here, we’ll offer a confession: We’ve been publishing financial research, insights and recommendations for 35 years. Many times people ask us: If you really knew what was going to happen, you wouldn’t sell your recommendations, would you? 

Of course not! We’re not that smart. Or that dumb. And we’re no angels, either. 

We research, we think, we study… and we take our best shot. Sometimes right. Often wrong. Always in doubt. 

That’s our business model: Readers pay us to try to figure out how things work… and what’s ahead. We wake up in the middle of the night sweating over the Triffin paradox or the Bank of Japan’s monetary policy. 

But if we really knew what was going to happen, we wouldn’t sell our advice for 99 lousy dollars… or give it away for free! We’d keep it to ourselves… stay mum… and place our bets quietly. Please keep this in mind as you read our advice, below… 

And when Wall Street offers to sell you a share of Twitter or Zynga or Zillow when they IPO… do you really think it is for your benefit? Do you think they are giving you an opportunity to get in on a great investment? 

Nah… not if they can avoid it! 

You’re the retail buyer… what Wall Streeters like to call “cannon fodder.” Wall Streeters will only sell you shares they don’t want themselves. They’re no angels either. 

And neither are the insiders who take these tech companies public. They typically keep large stockholdings… which they unload as soon as they are able. Most likely, after the initial enthusiasm wanes. And with some very public exceptions, there will always be more sellers than buyers. 

And if that weren’t enough, the insiders also make sure that they retain control of the money, no matter how many moms and pops own the shares. 

Facebook insiders, for example, own Class B shares giving them 10 votes for every ballot cast by mom and pop. They will make sure they direct the company’s resources to themselves… one way or another. 

Typically, the shareholders get no dividends… and will never get any substantial piece of the profits. 

You think it’s a level playing field, smoothed and policed by the SEC? You think Wall Street is there to help you finance your retirement? You think that by buying a stock you are a real investor, participating equally and fairly in the Great Capitalist Adventure? 

Well, think again! 

Here’s a trade that will work – cross our heart, hope to die (well, just cross our heart). Sell those damned expensive US Internet stocks. Buy those cheap energy companies run by corrupt Russian oligarchs. 

And if it doesn’t work out? 

Here’s a true confession of a newsletter guy: It is our best shot. What more can we tell you? Give it a couple of years. If it doesn’t work, let’s both forget it. We won’t say anything if you won’t. 

Regards, 

Bill

Further Reading: Most individual investors end up as “cannon fodder” for Wall Street. And the shocking part is you’re probably among them. This means you’re likely to get poorer, not richer, by investing in the stock market. The system may be rigged against you. But there is one simple trick you can use to “opt out” of the system altogether and finally achieve financial freedom. To find out how, read on here. 

This doesn’t mean a crash is on its way… but it does signal a corrective phase in US stocks is underway. 

You’ll see exactly what I mean in the following two charts… 

The first, is of the Dow Industrials going back the last six months. As you can see, the blue-chip index remains in a solid uptrend. And it has tested and held support at its 50-day moving average multiple times. 

But it’s a different story for the US small-cap Russell 2000 Index. As you can see from the chart below, it has broken below its 50-day and 200-day moving averages (meaning the current price is below the average price for the last 50- and 200-day trading days). 

In other words, the US market looks healthy at first glance… but drill down a bit and another, less healthy, picture emerges. 

If we see further weakness in the small caps, US blue chips may not be far behind. 

P.S. Don’t forget to check out the latest report from our publisher, Will Bonner. It details how a small group of rogue globetrotting millionaires are opting out of the rigged system on Wall Street… and finding financial freedom in a highly unusual way. Read Will’s full write-up here.