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.

Stocks rebounded strongly on Wednesday in the wake of what looked, on the surface, to be a strong Consumer Price Inflation report.

In the aftermath of that February jobs report, which showed faster-than-expected wage growth, this looked like it would be a negative. But it wasn’t, as the expiration of February contracts on the CBOE Volatility Index unleashed a torrent of VIX selling, which pushed stock prices higher in an epic short-covering rally.

In the end, the Dow Jones Industrial Average gained 1%, the S&P 500 gained 1.3%, the Nasdaq Composite gained 1.9% and the Russell 2000 gained 1.8%. Treasury bonds weakened, pushing the 10-year yield up to 2.91% — approaching the 3% threshold that is widely seen as a critical level as GDP growth, fiscal largesse and inflation pressures push up borrowing costs.

The dollar was hit hard as well, with Societe Generale’s Albert Edwards worried the drop is being driven by the seemingly limitless spending being condoned in Washington by President Trump and Congressional Republicans. Both gold and crude oil moved higher.

Breadth was positive, with advancers outpacing decliners by a 2.2-to-1 ratio. Troubled burrito maker Chipotle Mexican Grill, Inc. (NYSE:CMG) gained 15% on the announcement of a new CEO and hopes he can emulate the success he enjoyed at Taco Bell. At the sector level, gold miners led the way with a gain of 4.1%, while REITs were the laggards on the drag from the backup in rates.

On the economic front, both core CPI and CPI beat estimates on a monthly basis, but the annualized rates remain tepid. Core year-over-year CPI is running at just 1.8%. Retail sales disappointed as well, playing into hopes that the Federal Reserve continues to go slow with its rate hikes, with sales down 0.3% month-over-month for the first decline since September’s report on August sales.

Conclusion

Volatility was intense today, with the Nasdaq up 3% off of its post-CPI futures low. The dollar and bond prices are collapsing. Gold and short volatility ETFs are soaring. The Dow Jones has now climbed above its 50% retracement of its peak-to-trough losses. And the 10-year yield has hit its highest level since January 2014.

This is short-covering, pure and simple. And a relief for risk parity funds that depend on stocks and bonds moving in opposite directions. As long as stocks can keep rising to offset T-bond weakness, the show can go on.

But once higher yields start to bite economic growth and earnings growth expectations — driven by the inevitability of higher inflation — we will see a repeat of the recent market unpleasantness.

My guess is we have a couple of months, at least, before that happens. Until then, the volatility meltdown is creating a number of new trading opportunities. Including the nice gain Edge Pro subscribers are enjoying on their iPath S&P 500 VIX Short Term Futures TM ETN(NYSEARCA:VXX) puts.

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To avoid near term chances of a government shutdown, last week the U.S. Senate and House passed a two-year spending plan, which the President signed. The new plan significantly boosts government spending over the next two years compared to the previously in effect sequestration plan. No matter what your thoughts are on the big vs. smaller government debate, the fact is that government spending and government buying is a growth industry. In the spirit of “if you can’t beat them, join them”, one way to participate in the growth of the federal government is to invest in properties leased to government agencies.

There are just two real estate investment trusts that focus on owning properties leased to government entities. Government Properties Income Trust (Nasdaq: GOV) sports a high yield, but is saddled with a poor, third-party management agreement. GOV is one of those REITs where the management team does a lot better than the stock investors. The other government agency focused REIT is Easterly Government Properties (NYSE: DEA). This is an income stock that deserves a closer look and probably some of your investment dollars.

DEA is a growth focused REIT that came to market with a February 2015 IPO. The company has increased the dividend four times in its three-year life. This is a fact that makes this stock deserve some attention. To generate growth, the Easterly management team has a detailed plan to invest a significant amount of new capital to work each year. With a market cap of about $1 billion, the company has targeted acquisitions of $200 to $300 million per year.

Easterly has a three-prong analysis system when selecting new investment properties. They want to work with agencies that have growing missions in the Federal government. Examples are the Veterans’ Administration, the FBI, and Homeland Security. With these agencies, Easterly wants to find properties that are mission critical to the specific agency. Finally, the buildings or facilities must be attractive investments as commercial properties. This means they are relatively young or build-to-suit, are strategically located, and the leases are accretive to Easterly.

DEA currently owns 47 properties with 3.8 million square feet of space. The average age is 11.8 years and average remaining lease term is 7.1 years. New leases have terms of 10 to 20 years, with 5 to 10-year renewal options. Government agencies rarely leave a building. Lease renewals equal rent increases and more profits for Easterly. Growth for this REIT will be a combination of steady acquisitions and rental rate increases.

Finally, leasing properties to Federal agencies requires in-depth knowledge of Government Services Administration (GSA) procurement process, protocols and culture. This is a commercial real estate sector with high barrier to entry. As a result, being able to meet an agency’s needs is more important than being ultra-competitive on the lease rates. DEA can generate attractive returns from having the world’s most credit safe tenant. You can expect high single digit annual dividend growth from this REIT, combined with a 5.3% current yield. Attractive!

While the advancement of electric trucks is the headline grabber, the real news in the sector is that the U.S. trucking industry is enjoying a period of prosperity it hasn’t seen in years. Let me explain…

As I have written about many times, the U.S. economy has joined with nearly every other economy around the globe in a period of synchronized economic growth that the world has not seen in over a decade.

That is great news for a number of sectors and for us as investors. It makes even a supposedly boring industry like trucking filled with excitement over the growth opportunities.

U.S. Trucking Boom

We just experienced a robust Christmas season for retailers. In fact, it was the best since 2011. When you add in that manufacturers are also shipping more cargo – industrial production recently experienced the largest year-over-year gain since 2010 – it makes it a great time to be in the trucking industry.

We saw the ratio of loads in need of movement to trucks available in December hit the highest level on record. Then, in early January, just one truck was available for every 12 loads needing to be delivered according to online freight marketplace DAT Solutions LLC. That was the most unbalanced marketplace since the aftermath of Hurricane Katrina in October 2005. Moving into late January, that number only dropped to one truck for every 10 loads.

Related: Top 3 Electric Vehicle Stocks to Buy Instead of Tesla

This is significant since January is typically a quiet month for the industry. Yet this year, the national average spot truckload rates have been higher than during the peak season in 2007.

That has led to rising costs to get something shipped. The spot rate to hire a 53-foot tractor trailer has risen by 24% over the past year to over $2 per mile. Of course, many companies are being forced to pay a lot more than that if they want to jump to the front of the line and definitely have their goods delivered on time.Not surprising then that the consultancy FTR said the rate of active truck utilization stood at 100%, versus a 10-year average of 93%. In other words, there was no excess capacity in the system.

The situation is likely to get worse in April when produce shipments pick up. And this year we have a special factor – the full enforcement by the federal government of the ELD rules kicks in. An ELD is an electronic logging device in truck cabs that will monitor whether truck drivers are getting the amount of rest required by law. Truckers will be limited to driving only 11 hours per day. Trucks without the devices may be removed from the road.

All of these factors add up to great news for the stocks of companies involved in trucking and logistics. One such company is XPO Logistics (NYSE: XPO), which I will discuss in a moment. But there is also another obvious beneficiary of this boom.

Truck Manufacturers Also Booming

That beneficiary happens to be the companies that manufacture heavy-duty trucks. December saw the most Class 8 trucks (that most commonly used on long-hauls) ordered in three years. According to ACT Research, there were 37,500 such vehicles ordered, a rise of 76% from a year earlier.

And January was even a better month for the truck manufacturers! There were 48,700 heavy-duty trucks ordered. That is double the year-ago level and is the most big rigs ordered in 12 years.

The top truck manufacturing companies include: Daimler AG (OTC: DDAIY), Navistar International (NYSE: NAV), and a company that I’ve spoken about before with regard to electric trucks, Volvo AB (OTC: VOLVY), which is the world’s second-largest truck manufacturer.

On January 31, Volvo raised its forecast for the U.S. truck market saying that it expected deliveries to rise 7%. It said this would bring the company much closer to its goal of lifting operating profit consistently above 10% of revenue.

As I said, Volvo is a leader in the electric truck segment too. It is testing a hybrid powertrain for long-haul heavy-duty trucks that is all part of its Super Truck project working in conjunction with the U.S. Department of Energy. Here are some of its features:

• It recovers energy when driving downhill on slopes steeper than 1%, or when braking. The recovered energy is stored in the vehicle’s batteries and used to power the truck in electric mode on flat roads or low gradients.
• It also has an enhanced version of Volvo Trucks’ driver support system I-See, which has been developed specially for the hybrid powertrain, which analyzes the upcoming topography using information from GPS and the electronic map.

For long hauls, it is estimated that the hybrid powertrain will allow the combustion engine to be shut off for up to 30% of driving time.

Two U.S. Trucking Opportunities

Two U.S.-based firms that I like as beneficiaries of this ongoing trucking boom (which I can expect to last into 2019) are the aforementioned XPO Logistics and Navistar International. Here are some details on these two companies for you…

XPO Logistics is a top ten global logistics firm with operations in both logistics and transportation in 32 countries. Customers trust XPO with an average of 160,000 shipments and over seven billion inventory units every day.

It currently generates about $15 billion in annual revenue, with about 60% of that coming from the U.S. The breakdown between its two segments shows that roughly 63% of revenue comes from transportation (trucking and brokerage), with the remaining 37% from logistics. The logistics segment includes e-commerce fulfillment and warehousing operations.

XPO actually owns 16,000 tractors; 39,000 trailers; 10,000 53-feet intermodal boxes, and 5,200 chassis.11,000 trucks are contracted via independent operators and it brokers more than one million trucks. XPO also owns 440 cross-docks and 767 contract logistics facilities.

It is also an innovator in the industry with the use of advanced robotics and automation and leading -edge software and cloud-based platform. These innovations helped XPO to be named the top-performing U.S. company by Forbes on its 2017 Global 2000 list.

Navistar International manufactures International brand commercial and military trucks, school and commercial buses as well as diesel engines. Trucks make up most of its revenues, generating 67.8% of the total in 2017. The company has issued positive guidance for 2018 saying it expects revenues to be in the range of $9 to $9.5 billion versus $8.6 billion in fiscal 2017.

The company should benefit from the launch of new products. In order to strengthen the Class 8 lineup, the company introduced a new 12.4 liter engine – A26 – in February 2017. This new lighter-weight engine will provide a competitive entry to the company in the 13 liter segment, which constitutes about 50% of the Class 8 market. Navistar also started delivering new International brand vehicles with A26 engines. On the electric truck front, by 2019, Navistar plans to unveil an electric medium-duty truck in conjunction with Volkswagen.

A year ago (February 2017), Navistar unveiled a strategic alliance with Volkswagen’s truck division. Volkswagen purchased a 16.6% stake in Navistar for $256 million. This alliance should definitely broaden the company’s technology options and widen its range of products and services.

The lesson here is that you don’t have to limit your investments, if you’re looking for growth, to just sectors like technology or healthcare. Sometimes you can find growth opportunities in places you’d least expect.

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Amazon.com (Nasdaq: AMZN) has often been referred to as the ‘Death Star’. In Star Wars, this was the ultimate weapon, capable of destroying an entire planet. Not a bad analogy, considering Amazon’s ability to totally disrupt the existing order of entire industries.

Next on the list of industries to be disrupted looks to be healthcare, as Amazon recently announced a partnership with Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A and BRK.B) and JPMorgan (NYSE: JPM). The three behemoths are forming a not-for-profit healthcare firm whose goal will be to lower costs for the three companies nearly one million employees and “potentially all Americans”.

This is good news for American consumers. Here’s why…

The rising price for healthcare in the U.S. has meant health benefits now make up about 20% of total worker compensation, up from a mere 7% in the 1950s. This is likely one of the major reasons why we have wage stagnation in our country. Healthcare – emergencies and the cost of them – are also the number one reason for personal bankruptcies in the U.S.

Ripe for Disruption

But while the Amazon-led venture may be good for consumers, any company in the healthcare sector, except those that actually provide the care or manufacture medicines should be shaking in their boots.

The reason why was summed up nicely by Carmen Weelso, director of research at Janus Henderson, when she spoke to the Financial Times. She said, “The healthcare sector is ripe for disruption. [JPMorgan, Berkshire, Amazon] are potentially creating a model for something that is a lot cheaper than what is out there already.” Weelso added, “Healthcare margins are fat, and it is opaque how they make their decisions. Their profits have been great, so they’ve got a target on their back.”

This venture will be a competitive threat to all of the many middlemen in the healthcare sector. These include insurance companies, wholesalers and pharmacy benefit managers (PBMs). I’m sure the CEOs of these middlemen companies recall Jeff Bezos’ words: “Your margin is my opportunity.”

The U.S. simply has too many middlemen involved in its healthcare system. And so despite spending more per capita on healthcare than any other developed country, the US still ranks 12th out of the 12 wealthiest industrialized countries when it comes to life expectancy, according to data from the Organization for Economic Co-operation and Development (OECD).

So make no mistake – this venture is aimed squarely at those middlemen driving up the cost of healthcare. Warren Buffett said, “The ballooning cost of healthcare act as a hungry tapeworm on the American economy.” And he’s right – check out this graph on rising drug costs:

So what sectors are companies are in the crosshairs of these three giants of American industry?

First are the healthcare insurance companies. These include the top five U.S. insurers: UnitedHealth, Anthem, Aetna, Humana and Cigna. UnitedHealth alone provides or manages employee health insurance for nearly 30 million people.

Next come the PBMs that negotiate drug prices on the behalf of insurance firms and employers. These include Express Scripts and CVS Health and UnitedHealth. These latter three are involved in the lives of 250 million people!

And while the drugmakers will not be affected directly – Amazon will not begin manufacturing drugs – they will be affected in so far as they may struggle trying to maintain premium pricing on their drugs.

What the Venture May Do

While no one yet knows what exactly the venture may do, I think their first target will be insurance.

Amazon, Berkshire and JPMorgan will “self insure” their employees on a not-for-profit basis. Importantly, they would likely invite more companies to join the initiative in the very near future.

Some large companies, including all the U.S. automakers, already fund their own insurance plans by keeping the premiums and setting aside capital for potential losses. But they have contracted with the health insurers and PBMs to manage the plans. That has left control and fat profit margins still in the hands of those firms. For example, Amazon uses Express Scripts as its PBM and JPMorgan uses both Cigna and UnitedHealth to meet its employee healthcare needs.

This alternative is definitely needed. According to the Kaiser Family Foundation, annual premiums for employer-sponsored family health coverage reached $18,764 last year, up 3% from 2016. Workers, on average, paid $5,714 towards the cost of their coverage with employers picking up the rest. You can clearly the rising cost of healthcare insurance:

The not-so-funny joke among those in charge of employee benefits is that they currently have no option but to deal with ‘CUBA’ – Cigna, UnitedHealth, Blue Cross, Anthem or Aetna. But now, there will soon be a much cheaper and very viable alternative in the form of this newly-formed Amazon-led venture.
Investment Implications

So what could the investment implications be for you? They’re pretty obvious.

It should give you another reason to own  Amazon, if you needed one. I think the ‘Death Star’ will be successful in disrupting another sector, benefiting American consumers.

And even though the middlemen companies will fight change tooth and nail (already the big insurers have voiced their ‘concerns’ to JPMorgan’s Jaime Dimon) I would avoid or sell the stocks of all these companies.

I would even go as far as, if you have a high risk tolerance, to look at shorting these two ETFs that are loaded with middlemen stocks, the iShares U.S. Healthcare Providers ETF (NYSE: IHF) and the SPDR S&P Health Care Services ETF (NYSE: XHS).

Get Your Hands on Stocks Growing Revenues (and Stock Prices!) Faster than Google and Apple

I’d like to reveal to you the blue chip stocks – one in particular – that could literally be worth millions of dollars to you over the next decade.

Revenues for one firm in particular is growing faster than that of Google and Apple, the darlings of Wall Street. Investors have watched the stock price shoot up over 100% this past year and we’re just getting started.

You need to get in this stock before April 1st (it’s closer than you think!).

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Click here to find out what it is.

Source: Investors Alley 

My grandfather, William Paul Smith was an ordinary dairy farmer with a degree in common sense. One of his favorite sayings was, “It’s the same thing, only different.” 70 years ago, he warned me not to throw rocks at a wasps’ nest. As I cried and put ice on the sting, he explained what happened always happens – and I got stung! I thought I was different – and could outrun a wasp – and had to learn the lesson the hard way.

His sage wisdom does not just apply to children. Why is it that many lessons are constant, yet even as adults, we choose to ignore warnings and learn the hard way?

Good friend Chuck Butler, writes for Dow Theory Letters, a terrific publication. Chuck recently asked, “Will This Time Be Different?”

His headline reminded me of my grandfather. Warnings are appearing regularly – are they being ignored?

• Bonds are Flashing a Red Alert

• Credit Card Debt Hits All-Time High As Consumers Unleash Historic Shopping Spree

Subscribers are concerned. Mike L. recently asked:

“What do you think will happen with the dollar and today’s retirement plans if bonds tank, no one buys our debt, and other nations continue to conduct trade deals without using the reserve currency, etc.?”

Chuck warns:

“I’m only going to say this once … This is all headed for a Minsky moment. … A Minsky Moment is when a market fails or falls into crisis after an extended period of market speculation or unsustainable growth. I’ve moved that over to debt accumulation instead of a market.”

I contacted Chuck. Will the Minsky Moment appear in the stock or bond market? What can individual investors do to avoid getting stung?

DENNIS: Chuck, on behalf of our readers, thank you for taking your time for our education. Let’s get right to it.

Before I get into specific questions, you discussed a ratio of household net worth to income. I’ve never heard of that before. Can you explain it, and what it means for our readers?

CHUCK: Dennis, thank you for inviting me to share my opinions and thoughts from many years of investment experience with your readers. I get a kick from doing these interviews, just so you know!

Anyone with a home mortgage falls into this ratio… Basically, you take the house’s value, (easily obtained from Zillow.com) and you subtract what you owe on it. Simple, right?

Add up all of your income and divide it into the net worth figure you just calculated. The higher the number the higher the risk. If the house’s value falls, the income could be eaten away with just mortgage payments or increase the chance of defaulting on the mortgage.

Before we got crazy with home values in 2004-2007, this ratio was around 5.1%. In 2007 it peaked to 6.5%, and we all know what happened then. Lo and behold right now it’s 6.75%!

DENNIS: I’ve noticed a lot of ads encouraging people to refinance their homes while rates are still low, suggesting they can take some of the equity and pay off their credit cards. That only works if they cut up the damn credit cards. If millions of consumers refinance, basically taking equity out of their home, what impact will that have?

CHUCK: In 2005, I told my readers that consumers were using their houses like ATM machines, taking equity out of their homes to buy SUV’s, big screen TV’s, and fancy clothes. That was all fine until the house values began to fall, and now the consumers owed more on their house than it was worth.

Never in a million years would I have thought that we would again fall for that idea that house values will never fall, especially so soon after the last crisis and collapse. But here we are again…. And it’s all going to end up just like the last crisis, but this time, it will be worse, because we never cleaned out the excesses of the last boom period.

Banks and financial institutions have more derivatives on their books now, than they did before 2007…. Like your grandfather said, same thing, only different…and worse.

DENNIS: Our mutual friend, Dr. Lacy Hunt echoed your remarks about consumer credit growing at the fastest rates in 16 years when he recently wrote:

“Consumer spending, the economic heavy lifter of U.S. economic growth, has expanded by 2.7% over the past year…. Real disposable personal income rose by only 1.9% over the past year. It was only the ability to borrow that supported the spending increase. In economic terms,borrowing is a form of dissaving.

…. the only period in which the saving rate was lower than it is today was 1929-1931…” (Emphasis mine)

Chuck, I know you call it the “stupid” Consumer Confidence Index. It’s currently 94.4, which is doggone high. Consumers are so confident, they are “dissaving” at a historically high pace.

You are warning a lot of overconfident investors they may get stung – and badly! If debt is the issue, wouldn’t the Minsky Moment start in the bond market?

CHUCK: It just may do that Dennis. You see a Minsky Moment happens when everyone is complacent about the assets and thinks that nothing bad could happen, so they get overconfident and decide to take on more risk. At that point, the Minsky Moment is just around the corner.

What could cause a Minsky Moment in bonds? Well, think about this for a minute. The U.S. Fed has been a very large bond buyer since the first round of Quantitative Easing began in 2009. They bought boatloads of both U.S. Treasury bonds and Mortgage-backed bonds. Look at their balance sheet, it increased five-fold to over $4.6 Trillion in 2017.

The Fed announced a “tapering” in 2015, but they kept buying Treasuries to replace bonds that matured. Late last year they announced that they were going to stop buying bonds altogether. No replacement bonds, no auction window buying.

The question was… “Who is going to take the Fed’s place”? Well, there has been no one, to date, and the 10-year Treasury yield has risen from 2.05% on Sept. 8, 2017, to 2.65% on Jan. 18, 2018. That’s just the beginning, in my opinion!

The Fed may not be the only “no show” at the auction window. China is considering slowing down their Treasury purchases or halting them altogether! Guess who else has been slowing down their Treasury purchases? Saudi Arabia, and Russia… Oh-no! Say it ain’t so, Joe!

This is the Minsky Moment for bonds…no big Central Bank buying, will drive yields much higher. It could easily be followed with another Minsky Moment for stocks.

When interest rates hit historic lows, money flooded into the market as investors were desperately searching for yield. As yields rise, the tide will quickly turn, and mom and pop stock investors will take the risk out of their investments and go back to bonds.

DENNIS: One final question. Many of our readers are clearly seeing the signs, fearing a Minsky Moment is inevitable, but not sure about imminent. They don’t want to get hurt. When the Minsky Moment eventually happens, I believe it will be different – it will be uglier than most investors have seen in their lifetime.

What advice would you give our readers to protect themselves?

CHUCK: Well, you know me well enough Dennis that you could answer this question for me! But here it goes…

First of all, the dollar is going to be held hostage by all this chaos, expect high inflation. Diversify into euros, sterling, Aussie dollars, kiwi and some others would be prudent. In addition, either a new purchase of up to 20 to 25% of your investment portfolio in Gold & Silver, or an increase in your holdings.

I feel that Gold & Silver are going to replace all the hoopla of Bitcoin, and I also feel that once that happens there will be supply problems, thus raising the prices of these metals even higher.

There is a positive side. Those who heed the warnings will be presented with some terrific buying opportunities.

I thank you for allowing me to give my opinions and thoughts, Dennis. You have very astute readers, and I’m sure they will hear the calls to take defensive moves in their investment portfolios. As I said before, I get no kick from champagne, flying too high with some gal in the sky, is my idea of nothing to do, but I get a kick out of writing for you!

DENNIS: (chuckles) That was clever! Chuck, once again, on behalf of our readers, thank you.

Both Chuck and Lacy Hunt clearly point to similar warning signs of previous “Minsky Moments” where millions of people lost a lot of money. The same thing, only different?

We have a new generation that’s not been stung badly enough and learned a lesson. The warnings are there for all to see – some will heed them, take precautions, diversify, keep debt under control, keep stop losses current – and take advantage of some great opportunities when they appear. Others will ignore the warning signs. Why do so many of life’s lessons have to be learned the hard way? You can’t outrun a wasp!

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Source: Investors Alley 

Top Investor Stock: Tesla (TSLA)

Tesla’s big ambitions and disruptive potential have clearly struck a chord with top investors. This volatile auto stock boasts a “Very Positive” investor sentiment. Over the last 30 days, the best-performing investors have increased their TSLA exposure by no less than 10.8%.

But the Street does not share this optimism — quite the contrary. Right now, the stock has a hold analyst consensus rating with only six recent buy ratings. This is versus eight hold and nine sell ratings. Meanwhile, the $309 price target suggests big downside potential of 10% from the current share price.

Top Jefferies analyst Philippe Houchois has just slashed his 2018 revenue estimate for Tesla by 14%. He has also cut his fiscal 2018 Model 3 delivery forecast by 35% to just 175,000 units. In a bearish report (entitled “Another Curve Ball”) the analyst reiterates his “sell” rating and $240 price target (30% downside).

And he isn’t feeling overly impressed by CEO Elon Musk’s new merit-based compensation package. Houchois says the new deal sends “mixed messages” and is “overly incentivized on valuation multiples rather than financial performance.”

Top Investor Stock: Allergan (AGN)

Irish based Allergan Plc. (NYSE:AGN), maker of Botox, has a “Very Positive” signal from top-performing investors. Indeed, top investors have upped their exposure to this pharma giant by almost 3% over the last 30 days. Plus, investors who hold AGN on average dedicate 4.3% of their portfolio to the stock.

Perhaps these top investors are onto something. We can see that Barclays’ Douglas Tsao has just upgraded Allergan from “hold” to “buy.” The move comes with a bullish $230 price target (28% upside) up from $220 previously. Tsao’s shift in sentiment, after over three years on the sidelines, comes from the company’s market-leading Botox position. A survey of physicians revealed that patients are much more satisfied with Allergan’s Botox than rivals Dysport and Xeomin.

Overall the stock has a cautiously optimistic “Moderate Buy” analyst consensus rating. These analysts (on average) see the stock rising 18% to hit $212 in the coming months.

Top Investor Stock: Apple (AAPL)

Top investors still have faith in the market-leading power of iPhone maker Apple Inc.(NASDAQ:AAPL). Both in the last week and in the last 30 days, top investors have upped their Apple shareholdings (by 0.5% and 3.9% respectively). Plus Apple tends to make up a considerable chunk — 9% — of these portfolios.

However, the Street is not quite as bullish on AAPL stock as it used to be. The consensus is no longer “Strong Buy” but “Moderate Buy.” Analysts believe iPhone X sales peaked early and say Apple will guide for a lower March quarter than previously expected.

With this in mind, top Atlantic Equities analyst James Cordwell downgraded AAPL to “hold” with a $190 price target. He explains:

“This better than anticipated supply means that a greater proportion of demand was able to be served in the December quarter, leaving March quarter expectations (which were predicated on significant pent-up demand) for ~20% iPhone unit growth now looking somewhat aggressive (~20% iPhone unit growth).”

Top Investor Stock: Applied Materials (AMAT)

I am very bullish on chip equipment maker Applied Materials, Inc. (NASDAQ:AMAT). And I am not alone. Top investors are also piling into the stock, which also has 100% Street support right now. Indeed, in the last three months, no less than 11 analysts have published buy ratings on AMAT. Most promisingly, their average price target of $69 indicates upside potential of over 28%.

The No. 2 analyst on TipRanks, B.Riley FBR’s Craig Ellis has just met with AMAT management. He left the “upbeat” session with renewed conviction. Ellis explains why here: “We expect Memory spending sentiment to improve through 2018, and with that, we expect large-cap Semi Caps like AMAT (and KLAC and LRCX) to enjoy multiple expansion even as sell-side EPS grind higher.”

As for AMAT specifically, he says “AMAT’s vast portfolio breadth and large revenue scale positions mgmt well to frame industry spending potential and we sense CFO Durn remains justifiably upbeat.” Indeed, Ellis’ $71 price target indicates big upside lied ahead of 28%.

The latest buzzword on Wall Street is blockchain. There is a logic to the interest since the research firm Markets & Markets forecast that the market for blockchain-related products and services will reach $7.7 billion in 2022. The market for such products was a mere $242 million in 2016.

That has led investors to jumping on anything and everything even remotely connected to blockchain technology. That can be seen in the soaring stock prices for companies that have said they are “investing” into blockchain and therefore have added blockchain to their name.

A prime example of this is Riot Blockchain (Nasdaq: RIOT), which used to be known as BiOptix Diagnostics, a small supplier of diagnostic equipment for the biotech industry.

(Can you spot when Blockchain was added to the name?)

Another example is the former seller of hard ice tea – Long Island Iced Tea, which changed its name to Long Blockchain (Nasdaq: LBCC).

(A similar thing happened when blockchain was added to the name of a tea company)

I shouldn’t have to tell you this, but I will anyway… do not buy any of these companies – one of the biggest red flags you will ever see surrounding companies in the stock market is waving now! Instead, look at companies that have legitimate blockchain businesses. Or that at least are legitimately pursuing practical applications of blockchain technology.

Related: Buy These 3 Stocks to Ride the Bitcoin Boom

Blockchain Patents

For a hint about what companies you should be looking at, see what firms have either applied for, or have already received patents on blockchain technology. Not surprisingly (since blockchain can make transactions faster and more efficient), banks are among the leaders here.

Number one on the list – according to a study from EnvisionIP, a law firm specializing in analyses of intellectual property – is Bank of America (NYSE: BAC), which has applied for or received 43 patents for blockchain.

Tied for second on the list are Mastercard (NYSE: MA) and International Business Machines (NYSE: IBM). The latter was one of the very first big companies to see the promise of blockchain, contributing code to an open-source effort and encouraging start-ups to try the technology on its cloud for free. What really caught my eye regarding IBM’s blockchain efforts was a recent announcement.

Why Blockchain Is Appealing

Before I give you the details on the announcement, I want to fill you in why blockchain technology appeals to nearly every company.

The blockchain enables companies doing business with each other to record transactions securely. Its main strength lies in its trustworthiness. In other words, it’s tough to change what has been recorded. The blockchain can also hold many more documents and data than traditional database storage, and it can hold embedded contracts, such as a car lease, whose virtual key could be transferred to a bank in the event of a default.

That’s why, according to a survey done late last year by Juniper Research, 6 in 10 large corporations are considering using blockchain. Companies like Walmart are already testing blockchain technology in the hopes of streamlining their supply chain as well as speeding up payments.

A Practical Application for Blockchain

The words supply chain bring me to what I consider to be a major announcement last week from IBM and the world’s largest shipping company, AP Moller Maersk A/S (OTC: AMKBY). The two firms are setting up a joint venture to use blockchain technology in order to help make the companies’ supply chains more efficient.

The two companies estimate that businesses spend up a fifth of the cost to transport goods around the world on processing documents and related administrative costs. No wonder then that major corporations such as General Motors and Procter & Gamble are interested in joining Maersk as the first companies using the platform.

I fully expect other large corporations will join the platform. Beginning in June 2016, a pilot of this program saw companies including DuPont and Dow Chemical participate as well as the ports of Houston and Rotterdam and the U.S. and Dutch custom services.

Obviously, the hope of IBM and Maersk is that their system will set the standard for the digitalization of supply chains around the globe. Bridget van Kralingen, head of solutions and blockchain for IBM Global Industries, said to the Financial Times “There’s a lot of write-up about blockchain. But what we see is that the thing that is going to help the world is blockchain as a distributed ledger. The significance of that is huge for any transaction that has multiple parties.”

I totally agree – this is a practical usage for blockchain. Companies at different stages of the supply chain will be able to see all of the information they need about each transaction easily. Not to mention the automation and digitalization of the paperwork involved.

The proposed joint venture should be up and running within six months, with the blockchain software developed running on the IBM cloud. When it has its initial start, the venture will be tracking 18% of containerized, sea-going global trade.

Despite this important development, investors still ignore IBM as a blockchain pioneer. Maybe it should change its name to International Blockchain Machines?

For a more detailed look at the intricacies of what blockchain is and what it does, stay tuned for a special report from me in the near future.

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Source: Investors Alley