Wealth Building Strategies

Investing For Maximum Profits During A New US Presidency

By listening to President-elect Trump we can anticipate the effect his administration will have on the US economy. 

Here is what we know: Mr. Trump plans to beef up the military, and improve US infrastructure, including a wall at the southern border.   

While there are other priorities, such as improving on healthcare, just his two main goals will require many billions of dollars. 

Being a successful businessman is his asset, and no doubt the new president will surprise us with funding that will be new and novel, such as enticing US companies with overseas assets to repatriate those funds and put them to work in the USA. 

Nevertheless, we can be assured that whatever new sources of revenue the new administration comes up with, government spending will increase and so will the Federal Deficit.

The total US Federal Deficit will top 20 trillion before long. This will be accommodated with more printing press money. Congress and the Senate are likely to go along with spending plans. Already the ongoing monetary inflation is causing price inflation, and the expectation is that this price inflation will accelerate.

Our ’investing for maximum profits’ therefore must include stocks and commodities that will grow during a period of price inflation. 

Charts are courtesy Stockcharts.com unless indicated.       

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Featured is the monthly US CPI chart.  Even though this official government Consumer Price Index is ‘tweeked’ to make it appear as benign as possible, the trend is clearly rising higher.  

http://news.goldseek.com/2016/28.12/images/chart%20two.jpg

Featured is the Chapwood index of price inflation in 10 US cities.  This index www.chapwoodindex.com tracks items that are used or consumed on a daily basis, compared to the components of the index used by the government, which are ‘massaged’ to produce a desired outcome.  From these two charts (and especially the Chapwood chart) it is obvious that price inflation is ‘here to stay’.  

Following are some charts that feature commodities which will benefit from increased inflation.  Our personal portfolio is centered around these commodities and this portfolio has increased by over 52%, during the past 12 months.  In order to stay ahead of price inflation, our assets need to grow faster than the rate of inflation. 

      http://news.goldseek.com/2016/28.12/images/chart%20three.jpg

Featured is the Palladium chart.  Palladium is used in catalytic converters and price inflation will continue to cause the price of Palladium to increase as people decide to buy a new car before the next price increase.  This chart is bullish, as can be seen by the rising channel.  The moving averages are in positive alignment (green oval), and rising, along with the supporting indicators.  Price is turning up at the green arrow.  

http://news.goldseek.com/2016/28.12/images/chart%20four.jpg

Featured is the copper chart.  Price broke out from a large triangle, at the blue arrow. Up volume during the breakout was the highest in years.  The rush into copper appears to have been somewhat over-done and the pullback from 2.75 has just now found support at 2.45, where price carved out a strong upside reversal on Tuesday (green arrow).   The moving averages are in positive alignment and rising (green oval).  The supporting indicators are ready to turn positive, including the important A/D line at the bottom.  In any event it is obvious from this chart that copper is benefiting from price inflation.  (One of the stocks in our “Model Portfolio” – Western Copper – increased by 50% for a while on Tuesday).

http://news.goldseek.com/2016/28.12/images/chart%20five.jpg

This chart is courtesy Kitco.com and it shows Zinc to be in a bull market.  New spending on improving the US infrastructure will benefit zinc along with copper.  

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Featured is the lumber chart.  The trend is higher, as can be seen by the blue channel.  A close above the blue arrow will tell us that the uptrend is ongoing.   The supporting indicators are ready to turn positive.  

    http://news.goldseek.com/2016/28.12/images/chart%20seven.jpg

Featured is the Dow Jones US steel index.  Price has been in a bull market since January, and the Andrews Pitchfork analysis supports the rising trend.  The supporting indicators are back at support levels.  The moving averages are in positive alignment and rising.  

http://news.goldseek.com/2016/28.12/images/chart%20eight.jpg

Featured is GNX the commodity index.  Price has been rising all year, while carving out a bullish Advancing Right Angled Triangle (ARAT).  The supporting indicators are positive and the moving averages are in positive alignment and rising.  The breakout at the blue arrow turns the trend back to bullish, with a target at 690!

http://news.goldseek.com/2016/28.12/images/chart%20nine.jpg

Featured is the index that compares silver to gold, with two moving averages.  The silver chart is at the top.  The blue arrows point to bullish crossovers (blue above red) that turn out to be buying signals for silver.  The purple arrows point to bearish crossovers (red above blue), that turned out to be sell signals.  The blue arrow at the right points to a buy signal that is developing.  The close-up chart at the right shows this in detail.   Because silver is sought by investors as a hedge against price inflation, silver will benefit from the new presidency.

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This chart courtesy goldchartsrus.com and annotated by I.M. Vronsky at Gold-eagle, shows gold as a percentage of financial assets.  

There  are at least four reasons why gold will rise again:

  1. Protection against inflation.
  2. Reaction against Federal Deficits
  3. A beneficiary of negative ‘real interest rates’, currently at – 1.22%
  4. Several billion new investors since 1980.  Most of these reside in Asia, where gold is appreciated as a ‘store of value’. 

http://news.goldseek.com/2016/28.12/images/chart%20eleven.jpg

This chart courtesy Goldchartsrus.com shows the ‘real rate’ of interest.  The three month rate is -1.22%, while using government supplied numbers.  When actual cost of living numbers (such as the Chapwood index) are used, the ‘real rate’ is much lower.  Gold thrives when ‘real rate’ are negative. 

Disclaimer:  Investing involves taking risks.

Peter Degraaf is NOT responsible for your investment decisions.  

Peter Degraaf is an investor with over 50 years of experience.  He publishes a daily report for his many subscribers, including a ‘model portfolio’ on Monday evening.  For a sample copy please visit www.pdegraaf.com

Technically Speaking: Your Brain Is Killing Your Returns

“Technically” from this past weekend’s missive. The important point, if you haven’t read it, was:

“The stampede into U.S. equity ETFs since the election has been nothing short of breathtaking,” said David Santschi, chief executive officer at TrimTabs. ‘The inflow since Election Day is equal to one and a half times the inflow of $61.5 billion in all of the last year.  One has to wonder who’s left to buy.’”

You can see this exuberance in the deviation of the S&P 500 from its long-term moving averages as compared to the collapse in the volatility index. There is simply “NO FEAR” of a correction in the markets currently which has always been a precedent for a correction in the past.

SP500-MarketUpate-122316-2-1

The chart below is a MONTHLY chart of the S&P 500 which removes the daily price volatility to reveal some longer-term market dynamics. With the markets currently trading 3-standard deviations above their intermediate-term moving average, and with longer-term sell signals still weighing on the market, some caution is advisable.

 

While this analysis does NOT suggest an imminent “crash,” it DOES SUGGEST a corrective action is more likely than not. The only question, as always, is timing.

However, this brings me to something I have addressed in the past but thought would be a good reminder as we head into the New Year.

“The most dangerous element to our success as investors…is ourselves.”

The Five Most Dangerous Biases

Every year Dalbar release their annual “Quantitative Analysis of Investor Behavior” study which continues to show just how poorly investors perform relative to market benchmarks over time. More importantly, they discuss many of the reasons for that underperformance which are all directly attributable to your brain.

George Dvorsky once wrote that:

“The human brain is capable of 1016 processes per second, which makes it far more powerful than any computer currently in existence. But that doesn’t mean our brains don’t have major limitations. The lowly calculator can do math thousands of times better than we can, and our memories are often less than useless – plus, we’re subject to cognitive biases, those annoying glitches in our thinking that cause us to make questionable decisions and reach erroneous conclusions.

Cognitive biases are an anathema to portfolio management as it impairs our ability to remain emotionally disconnected from our money. As history all too clearly shows, investors always do the “opposite” of what they should when it comes to investing their own money. They “buy high” as the emotion of “greed” overtakes logic and “sell low” as “fear” impairs the decision-making process.

Here are the top five of the most insidious biases which keep you from achieving your long-term investment goals.

1) Confirmation Bias

As individuals, we tend to seek out information that conforms to our current beliefs. If one believes that the stock market is going to rise, they tend to only seek out news and information that supports that position. This confirmation bias is a primary driver of the psychological investing cycle of individuals as shown below. I discussed this just recently in why “Media Headlines Will Lead You To Ruin.”

The issue of “confirmation bias” also creates a problem for the media. Since the media requires “paid advertisers” to create revenue, viewer or readership is paramount to obtaining those clients. As financial markets are rising, presenting non-confirming views of the financial markets lowers views and reads as investors seek sources to “confirm” their current beliefs.

As individuals, we want “affirmation” our current thought processes are correct. As human beings, we hate being told we are wrong, so we tend to seek out sources that tell us we are “right.”

This is why it is always important to consider both sides of every debate equally and analyze the data accordingly. Being right and making money are not mutually exclusive.

2) Gambler’s Fallacy

The “Gambler’s Fallacy” is one of the biggest issues faced by individuals when investing. As emotionally driven human beings, we tend to put a tremendous amount of weight on previous events believing that future outcomes will somehow be the same.

The bias is clearly addressed at the bottom of every piece of financial literature.

“Past performance is no guarantee of future results.”

However, despite that statement being plastered everywhere in the financial universe, individuals consistently dismiss the warning and focus on past returns expecting similar results in the future.

This is one of the key issues that affect investor’s long-term returns. Performance chasing has a high propensity to fail continually causing investors to jump from one late cycle strategy to the next. This is shown in the periodic table of returns below. “Hot hands” only tend to last on average 2-3 years before going “cold.”

 

I traced out the returns of the S&P 500 and the Barclays Aggregate Bond Index for illustrative purposes. Importantly, you should notice that whatever is at the top of the list in some years tends to fall to the bottom of the list in subsequent years. “Performance chasing” is a major detraction from investor’s long-term investment returns.

Of course, it also suggests that analyzing last year’s losers, which would make you a contrarian, has often yielded higher returns in the near future. Just something to think about with “bonds” as one of the most hated asset classes currently.

3) Probability Neglect

When it comes to “risk taking” there are two ways to assess the potential outcome. There are “possibilities” and “probabilities.” As individuals we tend to lean toward what is possible such as playing the “lottery.” The statistical probabilities of winning the lottery are astronomical, in fact, you are more likely to die on the way to purchase the ticket than actually winning the lottery. It is the “possibility” of being fabulously wealthy that makes the lottery so successful as a “tax on poor people.”

As investors, we tend to neglect the “probabilities” of any given action which is specifically the statistical measure of “risk” undertaken with any given investment. As individuals, our bias is to “chase” stocks that have already shown the biggest increase in price as it is “possible” they could move even higher. However, the “probability” is that most of the gains are likely already built into the current move and that a corrective action will occur first.

Robert Rubin, former Secretary of the Treasury, once stated:

“As I think back over the years, I have been guided by four principles for decision making. First, the only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty we must decide and we must act. And lastly, we need to judge decisions not only on the results, but on how they were made.

Most people are in denial about uncertainty. They assume they’re lucky, and that the unpredictable can be reliably forecast. This keeps business brisk for palm readers, psychics, and stockbrokers, but it’s a terrible way to deal with uncertainty. If there are no absolutes, then all decisions become matters of judging the probability of different outcomes, and the costs and benefits of each. Then, on that basis, you can make a good decision.”

Probability neglect is another major component to why investors consistently “buy high and sell low.”

4) Herd Bias

Though we are often unconscious of the action, humans tend to “go with the crowd.” Much of this behavior relates back to “confirmation” of our decisions but also the need for acceptance. The thought process is rooted in the belief that if “everyone else” is doing something, then if I want to be accepted I need to do it too.

In life, “conforming” to the norm is socially accepted and in many ways expected. However, in the financial markets, the “herding” behavior is what drives market excesses during advances and declines.

As Howard Marks once stated:

“Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, since momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s essential to remember that ‘being too far ahead of your time is indistinguishable from being wrong.’

Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.

Moving against the “herd” is where the most profits are generated by investors in the long term. The difficulty for most individuals, unfortunately, is knowing when to “bet” against the stampede.

5) Anchoring Effect

This is also known as a “relativity trap” which is the tendency for us to compare our current situation within the scope of our own limited experiences. For example, I would be willing to bet that you could tell me exactly what you paid for your first home and what you eventually sold it for. However, can you tell me what exactly what you paid for your first bar of soap, your first hamburger or your first pair of shoes? Probably not.

The reason is that the purchase of the home was a major “life” event. Therefore, we attach particular significance to that event and remember it vividly. If there was a gain between the purchase and sale price of the home, it was a positive event and, therefore, we assume that the next home purchase will have a similar result. We are mentally “anchored” to that event and base our future decisions around a very limited data.

When it comes to investing we do very much the same thing. If we buy a stock and it goes up, we remember that event. Therefore, we become anchored to that stock as opposed to one that lost value. Individuals tend to “shun”stocks that lost value even if they were simply bought and sold at the wrong times due to investor error. After all, it is not “our” fault that the investment lost money; it was just a bad stock. Right?

This “anchoring” effect also contributes to performance chasing over time. If you made money with ABC stock but lost money on DEF, then you “anchor” on ABC and keep buying it as it rises. When the stock begins its inevitable “reversion,” investors remain “anchored” on past performance until the “pain of ownership” exceeds their emotional threshold. It is then that they panic “sell” and are now “anchored” to a negative experience and never buy shares of ABC again.

This is ultimately the “end-game” of the current rise of the “passive indexing”mantra. When the selling begins, there will be a point where the pain of “holding” becomes too great as losses mount. It is at that point where “passive indexing” becomes “active selling” as our inherent emotional biases overtake the seemingly simplistic logic of “buy and hold.”

Conclusion

In the end, we are just humans. Despite the best of our intentions, it is nearly impossible for an individual to be devoid of the emotional biases that inevitably lead to poor investment decision making over time. This is why all great investors have strict investment disciplines that they follow to reduce the impact of human emotions.

Take a step back from the media, and Wall Street commentary, for a moment and make an honest assessment of the financial markets today. Does the current extension of the financial markets appear to be rational? Are individuals currently assessing the “possibilities” or the “probabilities”in the markets?

As individuals, we are investing our hard earned “savings” into the Wall Street casino. Our job is to “bet” when the “odds” of winning are in our favor.Secondly, and arguably the most important, is to know when to “push away”from the table to keep our “winnings.”

…also:

The Implosion Of The Global Markets Has Started And Can’t Be Stopped

I Hope You’ve Been Paying Attention?

mmm– Dallas has blocked withdrawals from the police and firefighters pension fund.

 
– The Italian government is scrambling to prevent the world’s oldest bank – Monte Paschi – from going down.
 
– 446,000 people in the States joined the ranks of the permanently unemployed in November alone pushing the total number to an all time high 95.1 million.
 
– Meanwhile global stocks markets have added over $1 trillion dollars since Donald Trump’s election.
 
– Gold is off $250 since the post Brexit highs.
 
That’s not much of a way to say Merry Christmas, is it? But it’s a very good reminder as to how much things are changing. Of course we’ve been getting that message every day, week and month since the spring of 2008 when Bear Sterns went under. 
 
Still, that collapse of an 85 year old Wall Street mainstay still wasn’t enough to wake up investors, regulators, financial institutions or politicians. So 5 months later the subprime mortgage crisis hit and the world hasn’t been the same since.
 
The question is – what aren’t we paying attention to today that will shake the financial world?
 
Is it the end of the 35 year decline in interest rates and the subsequent trillion dollar losses in the bond market since July? Maybe it’s the success of the 5-Star Movement in Italy, who want to stop using the euro and return to the lira.
 
It could be the escalating problems in the emerging market countries,  led by the collapse of Venezuela, who are all in big trouble because they borrowed money denominated in US dollars and now their economies are tanking while the dollar goes up. As Canadian comedian Russell Peters says – “somebody’s gonna get hurt real bad.” Top of the list will be the people, banks and governments who lent them the money.
 
Maybe its Amazon’s new no check-out, no cashiers test store in Seattle, which reminds us of the job threat of technological substitution. My guess is that our political class is so clueless that they’ll be sitting in a self driving taxi on their way to an ATM machine in order to put money on their credit card to buy something online that will be delivered by drone – and still scratching their heads wondering if technological substitution is a problem.  
 
The First Thing To Understand
 
We are living through the most intense rate of change in history – and that spells both danger and opportunity. Danger – as in the fall in gold from over $1900 US to the $1150 range or the drop in the euro from $1.60 to $1.06 or the loonie’s decline from over to par to the 68 cent low. There are no shortage of examples of the cost of missing the changes.
 
But it works both ways. (Warning: this is the promotion part) If you had taken the advice at the World Outlook Financial Conference (Jan 2013) / Moneytalks (Oct 2012) and bought US dollars you’d be up over 30% even if you put it under the mattress. Better still, if you bought our recommended quality US dividend paying stocks (starting Mar 2009 and ever since) or real estate in the Phoenix area (World Outlook 2012) you’d be up triple digits.
 
People ask me all the time how can I protect myself – well that’s my answer.
 
But it’s not just in the US. Look at the results of all the recommendations of the 2016 World Outlook Small Cap Portfolio (as of last week).

smallcap

Of course past performance is not a guarantee of future results, but thanks to the research of Ryan Irvine and Keystone Financial, the World Outlook Small Cap portfolio has earned double digit returns every year since we first introduced it in 2009.
 
And I have to admit that I love when the recommendations pay for the price of a ticket many times over. And last year was no exception. John Johnson called the fall in the loonie from over 80 to under 70. Mark Liebovit called silver’s move from under $14 to $20. Josef Schachter oil stock recommendations were up over an average of 100%.
 
Of course I chose the keynote speakers for their track record so while it’s impressive, the great results are not a surprise. 
 
Here’s the Problem For Some People
 
I looked at the Friday, February 3rd television schedule – you’d be missing Undercover Boss and Hollywood Game Night, and Saturday has the much anticipated recap of The Bachelorette. That’s tough to compete with, even with some of the top market analysts in the English-speaking world, including Martin Armstrong, subject of a critically acclaimed documentary and an upcoming Hollywood film. But then again we all have to make sacrifices to secure our financial future.
 
The bottom line is that we take your time and money seriously. With that in mind we have put together our best conference ever in the hope of making you a significant amount of money and just as importantly protecting you financially. 

Sincerely, 

Michael Campbell, 
Host of Money Talks

2017 World Outlook Financial Conference Details

Where: Westin Bayshore, Vancouver BC
When: Friday afternoon and evening, February 3 and all day Saturday, February 4, 2017
For more information including speakers and the agenda: CLICK HERE
To reserve your seats: CLICK HERE

Stock Market Bulls, Stock Market fools-Market Crash next or is this just an Illusion

A learned blockhead is a greater blockhead than an ignorant one.

Benjamin Franklin

Since the markets bottomed in 2009, one naysayer after another has penned many an obituary for this market. Alas, all those obituaries were based on fantasy and false perceptions; the bull is alive and kicking while many of those experts are either bankrupt or have bankrupted their clients several times over. We repeatedly stated over the years that the era of low interest fostered an environment that favoured speculation over hard work. This is why so may companies have opted to be boosts EPS via share buyback programs. Why work, when through the magic of accounting you can create the impression of growth when there is none. All is well, and when it ends, only the workers and the masses will lose for the corporate wenches will walk away with bloated accounts.  

Despite the latest rate hike and the insane ramblings from the Fed that they are ready to raise rates more aggressively; yes we heard this last time and for over one year nothing happened. The reality is the economy is sick and only appears to be thriving because of the hot money that is being funnelled into the markets. This helps foster the illusion all is well when in reality everything is falling apart. Hence, while the Fed talks big, its bite will be weak.  We could go on providing more reasons as to why the economy is weak such as the fake unemployment data the BLS tries to get the masses to swallow, but all of this is irrelevant. The trend of hot money is in play, and until the supply of hot money is cut, this bull market will continue to trend higher.  This market will not trend higher forever; it will eventually run into a solid brick wall.  There is no point of fixating on what will happen one day when its far more profitable to focus on the now.  

The three charts below illustrate why this bull market still has legs

sox semiconductor inde

The semiconductor sector needs to be in a strong uptrend for a market to rally on a prolonged basis. A quick look at the above chart (semiconductor index) shows that the index is an in a very strong uptrend. It is trading above its main uptrend line and has continued to trade to new highs over the past five years. It could drop all the way to 650,and the outlook would remain bullish. 

Dow Transports Dec 2016

IYT (an ETF that mimics the Transports), is trending upwards again after experiencing a nice cleansing correction.  A monthly close above 165 will pave the way for a test of the 195-205 ranges. 

Finally, as we stated in the alternative Dow theory, the Utilities appear to be getting ready to trend higher. 

 http://goldseek.com/news/2016/12-21sp/Dow%20Utilities,%20IDU%20Dec%202016.png

As they are coming out of a correction, they are likely to play around the 625-640 ranges for a bit before breaking out. The utilities lead the way up, so a breakout to new highs should be watched closely. If they break out to new highs, it would indicate that after a correction that could range from mild to strong, the Dow industrials should follow the same path. 

Conclusion 

The Drs of doom will continue to chant the same monotonous and agonisingly painful song of death, instead of the markets collapsing they will be handed their heads on a platter again. If you had listened to these fools that masquerade as experts, you would have bankrupted yourself several times over.  This bull market will end but that day is not upon us yet.  The supply of hot money needs to be eliminated, and more importantly, the masses have to embrace this bull market. Over the short term, the markets have gotten slightly ahead of themselves and so some bloodletting probably next year would not surprise us. However, a correction and a crash are not the same things, something the Naysayers have a hard time recognising or coming to terms with.  When the markets start to pull back again, they will feel emboldened and crawl out of the woodwork screaming the same rubbish they always do. Don’t listen to them; we can even provide a small preview of what will happen. 

The lower the markets pull back, the more courageous these fools will become; they will start to spew ridiculous targets, and the masses will buy into this rubbish as they always do. Remember it takes one to cry, two to tango and three to have a party; just when it looks like the naysayers are going to be vindicated the markets will bottom and reverse course. These poor fools will then have the sharp displeasure of watching all their profits vanish into thin air.  Let’s think about it if they followed their advice they would have lost all their money several times over. Hence, they are not following their advice; they are singing a false song of misery but apparently not putting their money into the game. The truth is not always to spot, but when you spot, it should set you free. Those that think it hurts are living in a world of denial as they still cling to the old ways hoping that like a broken clock they might have the chance to be right. The trend is your friend and rubbish is your foe; trend wisely. 

Have the courage to be ignorant of a great number of things, in order to avoid the calamity of being ignorant of everything. Sydney Smith

…also from Bob Hoye: Fed: Pathetic

Want to build wealth? Break these 8 rules

build-wealthBeing “upside down” is usually a negative term when applied to financial matters, but multimillionaire Robert Shemin believes that sort of thinking is … well … upside down.

Shemin, author of “How Come That Idiot’s Rich and I’m Not?” feels there are two positions when it comes to wealth: right side up and broke, or upside down and rich. Shemin prefers upside down. The best way to build and maintain wealth, maintains Shemin — once considered the “least likely to succeed”– is by breaking the rules you think and hear about when building wealth.

Following are eight rules worth breaking — in upside-down order — and what Shemin and other financial gurus have to say about them.

 

8. Before investing, learn enough so that you’re not going to make any mistakes

The problem here: Fear causes inaction, Shemin says. “Everything in life has a risk and a cost for doing it, and a risk and a cost for not doing it. Rich idiots focus on the risk of not doing something.” In his experience, most people don’t get started on stock market or real estate investing, or in estate planning, because they’re so scared of making mistakes, they’re overwhelmed.

“Of course you should expect to make mistakes when you start investing (or any time),” agrees Ramit Sethi, who writes the popular blog, IWillTeachYouToBeRich.com. “But if you start with small amounts, any mistakes won’t hurt you too bad. Plus, any mistakes can be mitigated by time.”

…continue reading 7 thru to 1 HERE

…related: The Way To Wealth By Benjamin Franklin