All posts by Martin Denholm

How to Protect Your Retirement Funds Using Foreign Currencies

Can an average investor use foreign currencies as a hedge against the rapid decline of the purchasing power of the US dollar?

Last week, friend Chuck Butler and Idiscussed WHY investors should use currencies as an inflation hedge. This week we discuss HOW even small investors can do so from the comfort of their own home.

The discussion continues…

DENNIS: One final tidbit about foreign accounts before we move on.

Some pundits believe that having money in several countries is the ultimate diversification – out of reach of the US government.

Despite the fact that foreign money managers with US clients must go through an extensive process to comply with SEC regulations, many readers, particularly small investors, are understandably not comfortable with the idea.

When investing in foreign stocks you can make/lose money in different ways.

For example, Parkland Fuel is traded on the Canadian exchange. 25% Canadian tax is taken out of their monthly dividends. I’ve given up trying to figure out how to get the taxes back. Readers should look at their NET return before buying an investment.

Additionally, the stock may rise or fall, and so does the Canadian dollar.

Look at each element independently. Your profit/loss on the stock comes when you sell it; whereas your profit/loss on the currency comes when you move to a different currency.

Do your homework. Deciding what foreign companies to buy, what currencies to use, and the timing of buying and selling is what international traders deal with daily.

If you pick the right stock – and the right currency – you can do very well. Don’t be shy about asking for help.

Let’s look at other alternatives. There are several Exchange Traded Funds (ETF) that allow you to invest in foreign currency.

Chuck, can you explain how these ETF’s work?

CHUCK: Currency ETF’s are just like their brothers on the U.S. stock side. The ETF represents the currency it says it does. For example, FXA is for the Aussie dollar ETF, and FXE is for the euro ETF, etc.

I’ve never been a real fan of currency ETF’s because you would have to jump through fire hoops to get the currency out of the ETF delivered to your foreign bank account. When you sell, the currency is converted back to dollars and put in your brokerage account.

As we discussed, diversification is an added layer of safety. If an investor wants to go the ETF route, again I’d recommend they diversify among several.

DENNIS: You mention the funds are only redeemable in dollars. When would an investor want to have their account credited in foreign currency as opposed to US dollars?

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CHUCK: Anytime you sell a currency ETF you are converting back to dollars. You’re not only creating a taxable event, you’re also incurring conversion fees.

Here’s a couple of examples where you may not want to do that.

I used to run a foreign currency trading desk. We had people all over the world use our currency deposit accounts to hold euros, while their BMW or Mercedes was being built. They would go to Europe, pick up the vehicle, pay for it in local currency and drive it through Europe. You can’t do that with an ETF, you would end up paying fees to convert out of, and then back in to Euros.

Using your Parkland Fuel example. If an investor had a Canadian dollar ETF and wanted to buy a Canadian stock for better yield, they would have to sell the ETF – pay taxes on any currency gains – then pay fees to convert to US dollars and then back to Canadian dollars.

If they held Canadian dollars in a Canadian denominated savings or brokerage account, they would just buy the stock on the Canadian exchange, avoiding the taxable event and double conversion fees.

DENNIS: EverBank, your former employer, offers Certificates of Deposit (CD) denominated in foreign currency. Can you explain how they worked, and how they differ from the other options we discussed?

CHUCK: Ahh yes… my former employer… In June the EverBank name will be no more. Last year they were purchased by TIAA and soon the name will be changed to TIAA Savings Bank.

There are many differences, so here we go!

EverBank World Markets offers CD’s denominated in the foreign currency of an investor’s choice (about 25 currencies).

When the CD is opened your dollars will be converted to the foreign currency and put on the bank’s books denominated in the foreign currency you selected. The account is FDIC insured. FDIC insures the deposit in case of failure by the bank, it does NOT cover currency fluctuations.

There’s a conversion fee (less than 1%) when you open the CD, and another when you decide to close it. The CD’s are automatically rolled over with no conversion fee at maturity until you tell the bank to close out the CD.

Since there is no conversion on rollover, the holder maintains their original cost basis in the currency. If the currency gains in value VS the dollar, the holder of the CD can close out the CD and convert the principal and interest back to dollars, with a gain that would be used to offset the loss of purchasing power of a weaker dollar.

They also offer several baskets of currencies, allowing an investor, to diversify for added protection.

Unlike a US dollar CD, where you are encouraged to tie up your money for years, many investors ladder EverBank CDs with three-month maturities so one matures each month, which makes their funds fairly liquid.

You can also have a savings account, which most people use to hold currencies for short periods of time, waiting for the right time to convert, or for whatever they have bought from a foreign business, or a house to be ready to purchase, or a deposit on a vacation rental, etc. The savings accounts were created in 1988 by a man named Frank Trotter.

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DENNIS: Investing and holding foreign currencies is not as complicated as it sounds. Let me try to break things down into simple steps and you can tell me if I am accurate.

  • Step 1 – Decide if you want more inflation protection by diversifying into foreign currencies.
  • Step 2 – Decide what currencies you want to own.
  • Step 3 – How much do you want to invest? Consider fees of the various options as they could become a factor.
  • Step 4 – What are your risk priorities? Are you comfortable just holding currency, or do you want to invest in stocks or bonds that may provide yield and appreciation?
  • Step 5 – Where do you want to invest? Are you comfortable going offshore, or do you want to stay in the US?
  • Step 6 – Do your homework! You have many options:

– offshore account
– international account with US broker
– mutual funds
– exchange traded funds
– FDIC insured CDs like EverBank

I’m confident if you talk to a US broker, an ETF salesperson, EverBank or an offshore money manager they would be very persuasive about why their alternative is best for you.

Do your homework; make your own determination. You may find that diversifying among the options works best.

And most of all:

  • Step 7 – don’t get discouraged! Remember the goal. If you feel the dollar is falling in value, you must protect the buying power of your life savings. Investing in foreign currencies is like a bicycle helmet – you don’t need it until you crash! Then you’re doggone glad you have it.

Chuck, did I miss anything?

CHUCK: Dennis, you did a great job of taking all the mumbo jumbo and putting it in precise words for your readers!

A couple more points before I finish…

Currencies are an excellent way to diversify your investment portfolio. IF the dollar continues its decline that began last year, you’ll be able to offset the loss of purchasing power, which I’ve always considered to be a “tax”. I hate to see baby boomers and retirees lose purchasing power of their life savings!

I don’t believe that anyone should go “all-in” with currencies or Gold/Silver. Use them as a diversifying tool for your investment portfolio protection.

I told my audiences… You buy fire insurance and hope you never need it right? You buy health insurance with hopes that you never need it, and flood insurance, etc. Diversifying one’s investment portfolio is insurance against a falling dollar.

Unlike an insurance premium, there is no expiration date on foreign currencies, they will always hold some value.

DENNIS: Chuck, thank you so much for your time. I get a lot of email from readers who say good things….

CHUCK: It’s always a pleasure Dennis, thanks for inviting me.

Dennis again. Regular readers know I’m doggone concerned about inflation destroying the purchasing power of our nest egg. As Chuck said, “It’s a hidden tax”; and I don’t want to pay it.

Gold isn’t the only option. For investors, big and small, buying and holding foreign currencies has never been easier.

Jo and I have been invested in foreign currencies for almost a decade. The Fed is targeting 2% inflation using the bogus accounting, so it could easily be much worse. While currencies rise and fall with the market, we’re not going back to “all in” with dollars. It’s much too risky!

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Trump’s Trade War Set to Cost This Automaker $1 Billion: Sell Now

If you like a good war, you’re living in the right era.

You don’t have to look far before you hear about a war on something.

War on crime. War on drugs. And outright war itself.

Now we’re facing another one.

News that the United States will slap a 25% tariff on steel imports and 10% on aluminum imports has triggered fears of a global trade war.

European Commission President Jean-Claude Juncker set the tone by saying that the EU will be forced to retaliate to the “stupid process” by imposing tariffs of its own on exported U.S. goods. “We can also do stupid. We have to be this stupid,” as he put it.

Adding duty to such crucial raw materials from abroad should bode well for U.S. steel and aluminum manufacturers – and their respective workforces. But it will also reduce global supplies and consequently push up prices for end users. In turn, those costs will be passed down to consumers.

When you think of the amount of steel and aluminum used in products, many sectors and industries will suffer. Chief among them are ones like construction and transportation.

Indeed, the auto industry accounted for over one-quarter of U.S. steel demand last year, according to Statista. And the American International Automobile Dealers Association has already said the tariffs will result in higher car prices and lower sales.

That’s bad news for big, multinational U.S. automakers like Ford Motor Co. (NYSE: F).

Speed Bumps Ahead for Ford

Right off the bat, the stock is down 11.3% year-to-date. But the losses extend further back than that. Since July 2014, shares have tumbled steadily, falling 39%.

Other recent developments don’t bode well, either.

Sales Down: Nationwide, total auto sales fell by 2% in 2017. And while overall year-over-year sales were up 1% in January, Ford didn’t join the party, with sales down 6.6%. The climate got worse in February, with total nationwide sales dropping by 2% and Ford’s sales slumping by 6.8%. A 12.3% plunge in higher-end SUV sales marked the fall. Some analysts feel auto sales peaked in 2017. The fact that Ford’s shares still didn’t rise as a result back then – and its sales are now lagging significantly – is an ominous sign.

Interest Up: Another red flag is the fact that the price of a new car rose by 2% in February, to $35,444, according to Kelley Blue Book. Not only that, interest rates on car payments (both new purchases and leases) are rising, too. Edmunds says the APR averaged 5.2% in February – up from 4.9% a year ago and from 4.4% in February 2013. They’re now at the highest levels since 2010. Rising car prices and interest rates aren’t exactly a good combination for automobile manufacturers trying to boost sales numbers.

As if this climate weren’t challenging enough, Ford and other conventional automakers are also facing pressure from the increasing shift towards ride-sharing and electric cars.

And now, in addition to these headwinds, is the specter of trade tariffs. UBS says higher raw materials prices could cost Ford an extra $300 million this year, with Goldman Sachs warning it could hit the company’s operating profit by $1 billion. Keep in mind, Ford’s operating margin isn’t great anyway – just 4.3%.

Add it all up, and you’ve got a nasty cocktail for Ford: Falling auto sales, higher sales prices, rising interest rates on car payments that’s deterring consumers from new purchases, the shift towards ride-sharing and electric cars, plus steel and aluminum tariffs adding to retail prices.

Oh, and a stock that’s gone nowhere but down for almost four years now.

Give Ford a wide berth.

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It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
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Source: Investors Alley

The Case for Selling a Stock That’s Seen a 72% Boost in Revenue

On the surface, the 72% surge in year-over-year revenue that Snap Inc. (Nasdaq: SNAP) – parent company of camera and video app Snapchat – notched in the fourth quarter is mighty impressive. The total $285.7 million beat expectations by $33 million.

The firm also added 8.9 million new daily active users (DAUs) during the quarter – up 18% year-over-year to 187 million. That beat projections, too. Revenue per user rose 46% year-over-year to $1.53.

Look beyond the numbers, though, and you’ll see an uglier picture (no pun intended).

For starters, the company had to spend big to get that user growth, with sales and marketing costs up 119% and R&D expenses soaring by 260%.

And while Snapchat may be popular with the kids, it ain’t profitable.

The company lost $350 million during the quarter, compared with a $170 million loss in Q4 2016. Operating income also tanked from $169.7 million to $361 million over the same period. Adjusted EBITDA and free cash flow also dropped. In fact, for the full year, Snap’s free cash flow sank by $819.2 million.

You don’t need me to tell you that losses that large are completely unsustainable over the long run.

And as for that strong user growth… well, it’s not as strong as Instagram, which boasted 150 million DAUs in early 2017, but had ballooned the number to 500 million by September.

And speaking of Instagram, Snapchat may have caused itself a problem: Users hate the company’s redesigned app – and it’s pushing some of them to Instagram’s similar features instead.

A petition on received over one million people imploring Snapchat to scrap the new layout – an unusually large number, even for a social media platform.

And as if things could not get any worse for Snap, on Wednesday Kylie Jenner of Kardashian fame wiped out $1.3 billion in market value for Snap as shares plummeted from her short tweet:

“sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.”

That’s all it took for the stock to drop 6% in a matter of hours. And this is after it had already been on a downward slide since the beginning of the week. All told investors have lost close to 15% just this week. Ouch.

Snap may be improving its top-line numbers, but the company still isn’t anywhere near profitability. Until it manages to arrest the negative profit and cash flow trends, as well as add new users more cheaply (and not anger its existing base!), it’s an expensive and risky stock to own in a more volatile market.

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Source: Investors Alley 

Buy 3 These Three High-Yield Funds to Shelter Your Money from Volatility

In my last two articles, I’ve focused on tech sector investments. (Specifically, an industry-leading companywhose critical products are driving several huge tech trends, plus a diversified way to play one of today’s fastest-growing industries).

Over that time, of course, the stock market has also decided that it’s finally time for a good, old-fashioned bout of volatility.

So today – and in the spirit of not panicking – I want to step away from growth-based tech and follow up on Tim Plaehn’s article on Monday by giving you a couple of ways to combat adversity. Investments that will keep passive income rolling in, even when the market takes a dip.

Let’s get to it…

“Complete Morons”

When the S&P 500 closed last Thursday, it officially entered “correction” territory, having dropped by over 10% from its January 26 peak.

In the process, five of the S&P’s 11 sectors also dropped by over 10%, as the index lost $2.5 trillion of its value.

The culprit?

“Complete morons,” according to CNBC’s Jim Cramer.

You’ve heard of the CBOE Volatility Index (VIX) – which measures the level of fear or complacency in the market, based on short-term S&P 500 options activity.

But you may not have heard of the VelocityShares Daily Inverse VIX Short-Term ETN (Nasdaq: XIV). It aims to return the opposite of the VIX – and is one of the investments that Cramer says is responsible for the precipitous drop, due to uninformed speculators betting against volatility through investments they knew little about… and losing big.

The fallout was so great that XIV plummeted from a high of $141.39 on January 26 to $5.30 today. As a result, Credit Suisse, which sponsors the fund, announced its liquidation and XIV will cease trading next Tuesday.

When volatility hits, don’t get left holding the bag on these risky investments. There’s a much better way…

Case Closed

A few months ago, I touted the benefits of closed-end funds (CEFs) as hybrid between ETFs and mutual funds. To recap briefly:

  • Like ETFs and mutual funds, CEFs invest in a portfolio of underlying stocks. These stocks give a CEF its Net Asset Value (NAV).
  • CEFs are actively managed and trade like stocks. There are a limited number of shares available, which are priced intraday – either at a premium or discount to the NAV.
  • The “closed-end” part comes from the fact that CEFs are closed to new capital after they’re launched. A fund must subsequently use leverage to raise new money. Because leverage is a percentage of total assets, there’s a risk-reward factor, which affects performance.

But here’s the key point relative to the current climate: They’re less affected by volatility because they don’t create new shares.

They also pay healthy average dividends of around 8%. Check out these ones…

Liberty All-Star Growth Fund (NYSE: ASG): You want diversity? This fund has it – both by industry and asset class. For example, it has strong holdings in tech (28%), consumer cyclicals (18%), industrials (16%), healthcare (15%), as well as financials and real estate.

It also splits across market caps, with 47% midcaps, 23% small caps, and 17% large caps, with the rest distributed among mega caps and microcaps.

The fund is up 27% over the past 12 months, compared to 12% for the S&P 500. Right now, ASG trades at a very slight premium – just $0.15 above its NAV. But it offers a robust $0.44 per share annual dividend (paid quarterly) – a 7.8% yield.

BlackRock Health Sciences (NYSE: BME): From diversity to specificity. This fund focuses exclusively on healthcare, with most of the portfolio dedicated towards large-cap stocks like Pfizer, Merck, Gilead Sciences, Bristol-Myers Squibb, Amgen, Biogen, Celgene, and Johnson & Johnson.

In terms of capital appreciation, the fund has notched gains in eight of the past 10 years, ranging from 5.5% on the low end to 42% at the top end.

And if you like your dividends more often, BME pays them monthly and boasts a 7.1% yield. The fund is also trading at a 4.5% discount to its NAV, with a 1.1% expense fee.

Clough Global Opportunities Fund (NYSE: GLO): As the name suggests, this fund offers a more global outlook, with around 22% of the portfolio containing non-U.S. stocks. This includes the likes of Samsung, Alibaba, Broadcom, and the Swiss-based CRISPR Therapeutics.

Technology, healthcare, and financials make up the bulk of the sector denomination and it’s weighted towards bigger companies, with around 55% of the portfolio comprising large-cap stocks.

The fund enjoyed an impressive 2017, notching a 35% return.

Dividends are paid monthly and GLO currently spits back a beefy 11.7% yield. Even better… it’s trading at a 9.3% discount to its NAV. However, its management fee is a little more expensive than the other two funds, with an expense ratio of 2.2%.

Ultimately, diversified closed-end funds like these offer a much better way to shelter your portfolio from volatility, versus the riskier, more direct ways that we’ve seen investors try to play the market recently.

And remember… even if the stocks fall with the market, you’ve still got an all-important income stream coming in.

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Source: Investors Alley 

It’s Time to Go Long on This ETF While the Rest of the Market Panics

Let’s talk about big, long-term trends.

You know, those relentless economic and technological movements that promise to endure, no matter what’s happening in the stock market.

I’m talking about things that we can’t live without – like water or electricity – as well as fast-developing socio-economic trends like the shift towards greater use of robotics and automation.

I bring this up today because – as was inevitable – the markets are experiencing a sudden bout of serious volatility.

Following a whipping at the end of last week, the major indexes suffered a bloodbath to kick off this week, with the Dow shedding 1,175 points on Monday. It was the index’s biggest one-day points loss in history and the strong start to 2018 has been wiped out in the blink of an eye.

If you’re prone to panic… don’t.

Such volatility is something I’ve forewarned about a few times in recent articles – and I’ve given you a variety of investments to consider that are well-positioned to weather such storms.

But I’ve also highlighted companies that aren’t just defensive. They’re ones that should rise over the long term regardless – and are capitalizing on the robotics trend that I mentioned above.

These Two ‘Bots Are Rising

Specifically, I’m referring to ABB Ltd. (NYSE: ABB), which I profiled on November 30, and Brooks Automation(Nasdaq: BRKS), which I wrote about on December 14. Both stocks are up since I wrote about them.

As I noted in my original ABB piece, almost one-third of the firm’s annual sales come from its robotics business. And Frost & Sullivan recently recognized its prowess in this area with the 2017 Global Company of the Year Award for innovation in automation systems. The award was based on ABB’s industry-leading work in the Distributed Control Systems (DCS) industry. ABB connects 70 million smart devices via 70,000 automated control systems.

With Brooks, the company reported strong fiscal first-quarter earnings last week, with revenue totaling $189.3 million – up 18% over Q1 2017. Non-GAAP net income also rose by 35% over Q1 2017 to $35 million. That resulted in $0.32 EPS – up 25% and beating estimates by a penny.

For the current quarter, revenue is projected to hit $195 million to 205 million, with EPS between $0.33 and $0.41.

On a wider industry scale, the verdict is clear: The robotics and automation trend is growing. Fast.

  • The International Data Corp (IDC) projects robotics spending to surge to $230.7 billion in the five-year period to 2021 – with a CAGR of 22.8%.
  • The International Federation of Robots (IFR) says 1.3 million industrial robots will enter the global factory “workforce” this year. The figure will rise to 1.7 million by 2020.
  • The IFR projects even bigger growth for the service robot industry, with 32 million units in operation between this year and 2020. That will bring the market value to $11.7 billion.

As John Santagate, research manager at IDC Manufacturing Insights’ Supply Chain, says, “We continue to see strong demand for robotics across a wide range of industries.”

And as technology and innovation improves, the reach is spreading beyond just industrial and manufacturing, too. Dr. Jing Bing Zhang, research director at IDC Manufacturing Insights’ Robotics division, says. “The convergence of robotics, artificial intelligence, and machine learning are driving the development of the next generation of intelligent robots for industrial, commercial, and consumer applications. Robots with innovative capabilities such as ease of use, self-diagnosis, zero downtime, learning and adaptation, and cognitive interaction are emerging and driving wider adoption of robotics and enabling new uses in healthcare, insurance, education, and retail.”

He’s right. Growth here will continue for years to come – and I’m still positive on ABB and Brooks.

The past week’s market downturn also gives you a great chance to buy another investment on the cheap.

Go Robo

With volatility currently cranking higher, if you’re looking for a more diversified way to play this trend, take a look at the ROBO Global Robotics and Automation ETF (Nasdaq: ROBO).

Launched in October 2013, the actively managed fund (which includes both investment managers and industry experts) was the first to track global robotics, automation, and AI. It holds 89 stocks – including stalwarts like iRobot (Nasdaq: IRBT)and Rockwell Automation (NYSE: ROK) – with the $2.4 billion in assets divided equally among them.

In a testament to the strength of the industry, ROBO is coming off a stellar 2017, in which it gained 40%. It’s up 68% since inception.

With “lots of people looking at what’s going to happen over the next 5, 10, 20 years,” according to Global X Funds director of research Jay Jacobs, the robotics and automation trend is most definitely one place they’re looking. And as the industries continue to expand, heavily diversified funds like ROBO are right in the sweet spot of the growth.

Not only that, the market’s current downturn means you can buy shares for around 8.5% cheaper than a couple of weeks ago.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley