Uncategorized

2 Construction Stocks to Buy Even if Trump’s Infrastructure Plan Never Happens

Once again President Trump has brought to the fore the sorry state of infrastructure in the United States, which is the end result of decades of neglect from governments on all levels.

A White House report said, “Our infrastructure is broken. The average driver spends 42 hours per year sitting in traffic, missing valuable time with family and wasting 3.1 billion gallons of fuel annually. Nearly 40% of our bridges predate the first moon landing. And last year, 240,000 water main breaks wasted more than 2 trillion gallons of purified drinking water—enough to supply Belgium.”

 

The report did not exaggerate. You need to look no further than the 2017 report card on infrastructure from the American Society of Civil Engineers (ASCE). It gave an overall grade of D+ for U.S. infrastructure, continuing the persistent D grades seen since 1998.

This is a serious matter if we want to have a 21st century economy. As the ASCE report stated, “The cost of deteriorating infrastructure takes a toll on families’ disposable household income and impacts the quality and quantity of jobs in the U.S. economy.” This is a true statement because infrastructure effects how efficient and productive companies are, which in turn effects the country’s GDP.

 

The ASCE report estimated that through 2025, every U.S. household will lose $3,400 a year in disposable income thanks to infrastructure deficiencies. As a whole, the ASCE estimate is that the U.S. economy will lose almost $4 trillion in GDP by 2025.

Trump’s Infrastructure Plan: All Hat, No Cattle

The problem is that to fix our country’s infrastructure woes a lot of money will be needed. And that’s where the President’s proposed plan falls down.

 

The target for his infrastructure plan has been raised to $1.5 trillion, but the federal government will only kick in $200 billion over a 10-year period. In Texas, they would call that plan “all hat and no cattle.” Keep in mind that we have an almost $5 trillion shortfall in infrastructure, according to ASCE. Apparently, the days of federally-funded projects like the Hoover Dam and the interstate highway system are long gone.

One major flaw in the Trump plan is that it expects greatly increased contributions from cash-strapped cities and states. These entities already furnish the bulk of government spending on infrastructure, including three-quarters of the national spending on transportation and water systems.

States’ ability to borrow what’s needed to fund very large, multi-decade infrastructure projects is limited. And most states will be wary of raising taxes, since the Trump administration’s new tax plan limits the ability to deduct local and a state taxes from federal tax bills.

But what about the much talked about public-private partnerships?

Private Equity Says Fuhgeddaboudit

The Wall Streeters sitting of hundreds of billions for infrastructure investments gave Trump’s plan a cold reception. And it’s not just because of doubts about the politicians on the local and national levels.

FYI – there was a record $33.7 billion raised last year for North American infrastructure investments. The total since the end of 2015 is about $70 billion.

Infrastructure fund managers are mainly looking for assets that are already privately owned, such as railroads, utilities and pipelines. They are little interested in the deteriorating government-owned infrastructure like roads and bridges. And to the extent they are interested in publicly-owned infrastructure, their focus is much more on the privatizing of existing infrastructure rather than on new development – the core of Mr. Trump’s push.

As pointed out by the Wall Street Journal, one prime example is the Blackstone Group L.P. (NYSE: BX). It has plans to raise as much as $40 billion (not included in the previous figures) for U.S. infrastructure investments. But a mere 10% will be devoted to public infrastructure assets. The story is similar with almost all infrastructure funds.

Infrastructure Investments

Despite our country yet to get its act together on infrastructure, it still can be a good sector for you to invest in. You just have to pick and choose carefully. Here are two examples.

The company at the top of my infrastructure investment list has to be Caterpillar (NYSE: CAT), the world’s leading manufacturer of construction and mining equipment. It also makes diesel and natural gas engines as well as industrial gas turbines.

A big plus is that Caterpillar is truly a global company with more than half its sales generated outside the U.S. In its latest quarter, CAT reported a 34% rise in sales globally, with strength across all regions. This was a level last seen in August 2011. The company specifically noted that in North America the gains were led by construction. Adjusted earnings surged 160% in the quarter.

As of the end of fiscal 2017, Caterpillar’s order backlog was at $15.8 billion, driven by higher backlog in its resources-related industries business. The strong global macroeconomic background led management to guide its adjusted earnings per share to a range of $8.25-$9.25 for fiscal 2018. The midpoint of the guidance range reflects 27% year over year growth.

If you are looking for more pure U.S. exposure, there is Martin Marietta Materials (NYSE: MLM), which is a leading supplier of construction materials (such as aggregates) for highways, infrastructure and other building projects.

The company posted impressive results in the latest quarter, beating consensus estimates on both earnings and revenues. Adjusted earnings were up 21.3% from the year ago quarter to $1.88, while revenues were 2.3% higher to $970.5 million. For 2018, management guided revenue estimates to between $4.2 billion and $4.4 billion.

And if anything happens on the public infrastructure front, MLM is a sure beneficiary. Infrastructure construction accounts for about 37% of the company’s total aggregate product line shipments.

So even if the politicians dither (as usual), infrastructure investments can still be money-makers for you.

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Source: Investors Alley 

Cryptocurrency

Clarity on Crypto’s Biggest Threat: Government

I have long believed that the biggest threat facing cryptocurrency is government.

Most countries don’t appreciate competition from private markets when it comes to currency. Nearly all governments have operated with a central bank-controlled monopoly on money for a century or longer.

And after China shut down its domestic crypto exchanges and banned initial coin offerings (ICOs) last year, the fear was that other countries around the world would follow suit.

This regulatory risk factor has been stalking cryptocurrency markets ever since. It’s the No. 1 concern I hear about from our subscribers and other crypto enthusiasts.

Fortunately, we now have more clarity on this issue. In many countries where crypto trading is popular, discussion has shifted away from rumors of bans to talk about smart regulation.

In a U.S. Senate hearing this month, Commodity Futures Trading Commission Chairman J. Christopher Giancarlo was surprisingly upbeat about the future of U.S. crypto markets. Here’s a quote from the hearing…

“Do no harm” was unquestionably the right approach to development of the internet. Similarly, I believe that “do no harm” is the right overarching approach for distributed ledger technology… With the proper balance of sound policy, regulatory oversight and private sector innovation, new technologies will allow American markets to evolve in responsible ways and continue to grow our economy and increase prosperity.

You can read Giancarlo’s full written testimony here.

However, Giancarlo and Securities and Exchange Commission Chairman Jay Clayton struck a more cautionary tone about fraud in the market. They’ve already acted to stop a few cryptocurrency operations that were allegedly operating like Ponzi schemes.

Here’s an excerpt from a joint statement by Clayton and Giancarlo…

The CFTC and SEC, along with other federal and state regulators and criminal authorities, will continue to work together to bring transparency and integrity to these markets and, importantly, to deter and prosecute fraud and abuse. These markets are new, evolving and international. As such they require us to be nimble and forward-looking; coordinated with our state, federal and international colleagues; and engaged with important stakeholders, including Congress.

Similar developments are happening around the world. South Korea, a major crypto hub, has backed off a rumored ban on crypto trading. Government policy coordinator Hong Nam-ki said the following, as reported by Reuters…

The government’s basic rule is to prevent any illegal acts or uncertainties regarding cryptocurrency trade, while eagerly nurturing blockchain technology.

This is exactly what I’ve been hoping for. We need regulators to step up and prevent bad actors from tarnishing the industry.

Regulation has the potential to legitimize the nascent cryptocurrency markets. Done correctly, it would clear the path for institutional buyers to step in and rocket the market higher.

Of course, there’s still the risk that governments could reverse their opinions. But based on what we’ve seen so far, I would argue that this is the most positive development we’ve had in years.

I cannot overstate the importance of the clarity we’ve gotten on the government/regulatory risk situation.

This prospect of widespread bans has been a looming threat hanging over the crypto world. For now, that threat has passed.

Crypto Markets Rebound Strongly

With the biggest near-term threat to crypto largely overcome, markets have reacted to this bullish news appropriately.

During the low of the sell-off on February 6, bitcoin briefly dipped below $6,000. We last saw prices that low just before Thanksgiving 2017.

That same day, I sent out a note to First Stage Investor subscribers titled “Crypto Markets: Nearing a Bottom?”

In the alert, I noted the following…

We are reaching a retracement point where, historically, a bottom forms… So if you believe in the long-term fundamentals of cryptocurrency (as I do) and have been waiting for a chance to buy the dip, now seems a fine time to do so across our recommendations.

So far, it looks like we may have called it (near) the bottom. Bitcoin is trading back above $10,000 as I write this, with most altcoins following bitcoin’s lead.

I continue to believe we’ll see new all-time highs in crypto this year.

Here’s how I think about it: 99% of the world is still on the sidelines. And other than a handful of early institutional adopters, 99.99% of the professional investing world remains on the sidelines as well (venture capital funds, hedge funds, wealth managers, family offices, etc.).

There’s no question in my mind that the potential rewards still far outweigh the risks.

The difficult part remains holding through nasty corrections and buying the dips when it seems as if the crypto world is ending. If you can discipline yourself to do that, you’re well on your way to making money in crypto.

Good investing,

Adam

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Source: Early Investing 

Uncategorized

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 

Cryptocurrency

Why the Government’s Approach to Crypto Won’t Last

Crypto is in a tough spot…

One of those lousy, unsought, “damned if you do, damned if you don’t” spots.

You see, it needs a well-thought-out and fair regulatory regime.

And it needs the government to get it right.

What Are the Chances?

Man, that’s a big ask.

It’s like inviting Uncle Sam to tax your money but not too much… to raise the interest rates but not too much… to shrink government but not too much…

How do you arrive at “too much” or, for that matter, “too little”?

Chances are, when you invite the government into your personal or professional life, you usually regret it.

You simply don’t expect them to get this stuff right.

What I hope for?

That they don’t get it completely wrong.

That’s what I’d like with crypto.

It’s pretty clear that the government wants to throw the hammer down on scamsters and schemers…

What the SEC calls “bad actors.”

Great. I agree with the SEC when it says that a thinly traded and volatile market is ripe for fraud from many different actors.

Question is, can it do this and also maintain a light touch?

Can it choose its targets with a minimalist approach?

Can it regulate what is absolutely necessary and leave the rest alone?

As I said, it’s a big ask.

Some Surprising and Not-So-Surprising Signs

Ninety-nine times out of 100, the answer is “of course not.”

But this time may be different.

The government has recently shown surprising signs of NOT wishing to drown the crypto sector in overly restrictive regulations.

A great sign?

It came from the chairman of the Commodities Futures Trading Commission (CFTC) in a recent Senate hearing. He said that “do no harm” was the right approach for distributed ledger technology…

Just as it was some 40 years ago for the internet.

The SEC has also chipped in with some surprisingly sensible statements. A recent one said that ICOs “can be effective ways for entrepreneurs and others to raise funding.”

This is real ground for optimism.

But, alas, the government has also been sounding… well, like what we’ve come to expect from Washington.

Consider these statements that come from Congressional testimony and an article co-written by SEC Chair Jay Clayton and CFTC Chair Frank Giancarlo…

  • “We are disturbed by many examples of form being elevated over substance, with form-based arguments depriving investors of mandatory protections.”
  • “Cryptocurrencies are now being promoted, pursued and traded as investment assets, while their much-touted utility as an efficient medium of exchange is now a ‘distant secondary characteristic.’”
  • “Experience tells us that while some market participants may make fortunes, the risks to all investors are high. Caution is merited.”
  • “The SEC is devoting a significant portion of its resources to the ICO market.”
  • “The SEC has made it clear that federal securities laws apply regardless of whether the offered security – a purposefully broad and flexible term – is labeled a ‘coin’ or ‘utility token’ rather than a stock, bond or investment contract.”
  • “Simply calling something a ‘currency’ or a currency-based product does not mean that it is not a security.”
  • “Market participants should treat payments and other transactions made in cryptocurrency as if cash were being handed from one party to the other.”

Don’t get me wrong.

None of these statements are unreasonable.

They point to three valid concerns…

First, frivolous ICOs created by so-called entrepreneurs wishing to make a quick buck need to be reined in.

Second, fraudsters need to be identified and prosecuted.

And third, companies can’t circumvent security regulations merely by calling their coins “utility tokens” or a currency.

What Makes Me Nervous?

It’s what they said about “Main Street” investors…

[Our] concern [is] that too many Main Street investors do not understand all the material facts and risks involved.

This is classic Big Brother – “we’ve got to protect the little guys from their own ignorance” – talk.

I was inundated with this kind of talk when startup investing was limited only to accredited investors.

It took several years for the SEC to get off its hindquarters and extend startup investing opportunities to EVERYBODY, as the JOBS Act intended.

But there’s no JOBS Act here.

The government is free to act in the name of investor protection to limit and even bancryptos and ICOs.

What Will the Government Do?

A hint came last September.

The SEC’s new Cyber Unit will “recommend enforcement actions” relating to cryptocurrencies against those who violate securities laws.

So it looks like the SEC is shifting into a more aggressive approach.

But then there’s this hint…

In testimony to the Senate, the SEC said it would apply the same “facts and circumstances” analysis to determine whether ICOs and cryptocurrency markets should be classified as securities.

Instead of a broad crackdown on ICO activity, the SEC plans to continue enforcement on a case-by-case basis.

So perhaps not so aggressive, after all.

Some may even call this approach “balanced.”

Which, to me, is just another way of saying it can’t last.

A Leap in the Making

Blockchain technology is allowing us to make the leap from systems based on trust in people and institutions to trust in math.

One recent crypto roundtable chose this motto for its conference: “No leaders. No rulers. In code we trust.”

Meaning…

The government is NOT to be trusted. The banks are NOT to be trusted. Fiat money is NOT to be trusted.

And individuals with wealth or power? NOT to be trusted.

How much longer can the government remain “balanced” in the face of such a radical creed?

Blockchain technology has already created much wealth among its creators and adherents. It’ll create much more when it commercializes and scales.

So before answering, we need to acknowledge another question lurking below the surface…

How much longer can it remain committed to disrupting the existing financial order and replacing fiat money?

History says not long.

The blockchain is something new and potentially powerful.

Who will be the ones to unleash its power?

The government? The banks?

Or people who distrust both but trust code?

Nobody knows. If somebody tells you they do, they’re lying.

We all have a vision of how the world could change for the better, and it’s always according to our own principles.

So I’ll leave you with a bit of wisdom from the Liverpudlian gang, circa 1968…

You say you want a revolution
Well, you know
We all want to change the world
You tell me that it’s evolution
Well, you know
We all want to change the world.

Okay, they didn’t have crypto in mind.

But, from the sound of it, they could have.

Good investing,

Andy Gordon
Co-Founder, Early Investing

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Source: Early Investing 

Bear

Dump These Energy Stocks Before the Next Correction

After topping 10 million barrels per day for the first time since 1970 in November, the U.S. Energy Information Administration (EIA) said that U.S. crude oil production hit 10.2 million barrels per day in January. That surpassed the previous record (10.04 million barrels) for any month that was set in 1970 during the final days of the first Texas oil boom.

This is a remarkable feat considering the United States hit its low point in oil production in 2008 at about five million barrels a day. And oil imports are down to only about 2.5 million barrels a day as compared to the peak of 13.4 million barrels per day in 2006.

The EIA also upped its forecast for U.S. crude production for this year to 10.6 million barrels per day and for 2019 to 11.2 million barrels per day. If the forecast is right, it will make the United States the world’s largest oil producer, surpassing both Russia and Saudi Arabia.

For the prime example of the change in U.S. oil fortunes, look no further than the Permian Basin, which is located in Texas and New Mexico. Output there in 2017 totaled 815 million barrels. The previous record was set in 1973 at 790 million barrels.

All of this is good news, right?

Yes, if you’re an oil consumer. But if you happen to own oil stocks, the answer is a resounding no.

Shale Oil Company Stupidity

And the reason is obvious. The last time oil prices rose into the $60s per barrel, the U.S. shale producers pumped oil out of the ground as fast as they could. The assumption was that demand from places like China would continue to soar exponentially.

So when demand cooled a bit, the result was a crash that took the oil price into the 20s per barrel, which devastated the industry for several years.

Demand is still strong at the moment. For example, China is the second-largest market for U.S. crude oil, having imported 50 million barrels in the first nine months of 2017. But the oil storage facilities in China are nearing capacity, leaving an open question about the extent of future U.S. oil imports.

And since the recovery rate for oil from shale reserves remains very low, this suggests there is more potential for increased production as the technology to get at these reserves is improved.

Based on the history of absolutely no discipline from the U.S. shale industry, I expect an even greater flood of U.S. crude than the EIA forecast. That flood will likely send oil prices tumbling once again. And it’s not just the smaller shale companies that are solely to blame.

Energy giant ExxonMobil (NYSE: XOM) said in late January that it plans to increase its oil output in the Permian Basin fivefold by 2025 to 500,000 barrels per day. And Exxon is hardly alone among the majors.

Chevron (NYSE: CVX) also has said it will invest $2.5 billion in shale this year, with most of that investment going into the Permian Basin. For 2019, Chevron said it will invest a total of $4.3 billion into shale, with $3.3 billion of that going into the Permian Basin.

Oil companies continue to invest into shale even though most U.S. shale companies have struggled for profitability, and the industry as a whole has consistently lost money since the first successful shale oil wells were drilled in 2008-09. Exxon itself lost $439 million on oil and gas production in the US in the first nine months of 2017.

Other Considerations

While all of this is going, the smaller shale companies are also being adversely impacted by the change in the tax laws limiting interest deductibility.

Remember that many of the shale firms have heavy debt loads and now they will not be able to deduct all of their interest payments on that debt. According to Greensill Capital, if the limits on deductions in the 2018 to 2021 period had applied in 2016, companies would have been unable to claim tax relief on 39 % of their interest payments. The limit for 2022 onwards would have prevented relief on 97 % of those payments.

Consider too how quickly too oil dropped below $60 per barrel during just a few days of market turmoil, suffering its worst week in two years. That shows you will see how little firm support there is at the current price level. The steep price decline was likely the result of hedge fund liquidations – hedge funds had accumulated a record long position in crude oil.

Add this all up and I would avoid, or sell short if have a high risk tolerance, the oil producing sector as a whole.

Investment Implications

With the added consequences of the new tax law, I would definitely avoid the exploration and development companies that are carrying heavy debt loads. Two ETFs that have large exposure to these type of companies are the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) and the iShares U.S. Oil & Gas Exploration & Production ETF (NYSE: IEO). These two ETFs are down 12.88% and 9.05% respectively year-to-date. The former is off nearly 20% over the past year.

Even the Energy Select Sector SPDR Fund (NYSE: XLE), whose largest positions are Exxon (22.6%) and Chevron (17%), is actually a little in value over the past year. In other words, your money will be treated better elsewhere; especially in the light of these companies going in so heavily into shale and ramping up output that will very likely not be needed.

However, if you still wish to have some exposure to the oil sector, I would go with the Norwegian oil company Statoil ASA (NYSE: STO) whose stock is up 21% over the past 52 weeks. The company reported better-than-expected earnings in its latest quarter on the back of record production.

It also, in December, gave the go-ahead to its flagship Johan Castberg project in the Barents Sea after slashing costs by 50%. The breakeven for the project is now less than $35 per barrel. The Barents Sea is thought to hold about half of Norway’s undiscovered oil and gas. The company’s management also showed their savvy when they bought mature oil assets offshore Brazil for the equivalent of $10 per barrel in December.

Now don’t get me wrong. If oil falls in price, so will Statoil’s stock. But I like a management that is focused on squeezing costs and only going ahead with the most profitable long-term projects.

That is unlike some U.S. company managements that only know the words, “Drill, baby, drill!” No doubt due to the fact that some incentive packages for executives are still based on the amount of oil produced and not on bottom line profitability.

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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.
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Source: Investors Alley 

Uncategorized

Stocks Make Strong Comeback Despite Recent Turbulence

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.

Dow Jones

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.


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Conclusion

Stocks Make Strong Comeback Despite Recent Turbulence

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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Source: Investor Place

Uncategorized

Buy This Stock Profiting From Out of Control Government Spending

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 since it’s 2015 IPO.

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!

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Technology

Why Facebook, Inc. Stock Is Still a Long-Term Buy

Social media giant Facebook, Inc. (NASDAQ:FB) has been an investor favorite for years due to its exponential growth and dominance within the industry. However, in recent weeks, investors have been spooked by the company’s changing strategy and worries about user numbers.

While its true that some big changes are on the horizon, big opportunities await as well, which make FB stock a buy for long-term investors.

User Number Decline?

A new study by eMarketer showed that Facebook is struggling to hold on to American users under the age of 25. The firm’s research concluded that the number of FB users between 12 and 17 years old declined by 9.9% last year — a far cry from the 3.4% that the firm had initially predicted. This year, eMarketer sees the company losing some 2.1 million users under 25.

On the surface, that looks very worrying. No one wants to be losing clout with the upcoming generation, especially not a social media company like Facebook. However, it’s important to note that these numbers don’t include Instagram, which is also owned by Facebook.

In fact, eMarketer predicted that Instagram’s U.S. user base will see a 13% rise this year, higher than rival Snapchat from Snap Inc (NYSE:SNAP), which is seen growing its U.S. user base by 9% this year. So, although it’s not great that FB’s flagship platform is losing touch with the younger generation, it’s losing users to itself which isn’t so bad.

Big Changes Ahead for FB

Another factor that has been weighing on FB stock is the company’s decision to pivot its strategy to focus on security and engagement over profits. In the tech space, it’s a reality that security spending will rise as new scams emerge.

That’s especially true for a social media company like Facebook, which has had to deal with complaints about fake news reports and extremist propaganda. CEO Mark Zuckerberg cautioned that security spending would take precedence over profits, and most agreed that was a wise move in order to keep the company at the top of the industry.

However, during the firm’s most recent earnings call, Zuckerberg dropped another bomb — engagement would also come before profits. Unfortunately, investors didn’t take quite so kindly to that sentiment.

Facebook has been reworking its platform to make sure that users are seeing more valuable content. That means fewer ads from businesses and viral videos and more posts from actual friends that they care about.

The problem for investors is that taking away ad space will likely cut in to profits. While that is definitely a concern, engagement is the only way FB works, so it’s important that the company change with the times and keep its users happy.

Big Opportunities

While Facebook’s shifting strategy does add some uncertainty, it’s important to note that the company also has quite a few opportunities ahead as well.

The firm has been working to develop a video content option on its site that could eventually rival YouTube from Alphabet Inc’s (NASDAQ:GOOGL, NASDAQ:GOOG).

Facebook’s Watch tab is still in the early stages, but the company is planning to build it out with user-created content through an ad revenue-sharing scheme. The benefit for Watch is the fact that Facebook already has so much data on its users and what they like to see that it will make it easy for the firm to create curated content geared toward individuals.

The firm is also planning to allow companies to select the kind of content their brand wants to be associated with in order to ensure that ad placement is relevant.

While it still has a long way to go before catching up to YouTube, Watch offers a ton of potential for Facebook once it gets rolling.

Facebook has the potential to monetize its grip on the messaging space in the coming year as well. FB currently owns the two most popular messaging services on the planet — WhatsApp and Facebook messenger. So far, the firm has done very little to monetize those assets, but once it does, we will likely see a huge boost to the Facebook’s profits.

The Bottom Line on FB Stock

FB stock could have a bumpy road ahead over the next few months as it works to pivot its business and address concerns. While it’s true that will add some uncertainty, I’d be more worried if the firm were to ignore it and continue with business as usual.

Facebook has 1.4 billion daily active users; with that kind of reach, it’s hard to imagine a scenario in which the company fails miserably. It’s smart to rework the site in order to keep users engaged, and the firm has plenty of other revenue opportunities to build out in order to keep shareholders of FB stock happy.

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Source: Investor Place 

Cryptocurrency

The Key to Crypto Profits

Editor’s Note: In light of cryptocurrency’s recent pullback, we’re presenting an updated version of an article Adam originally wrote in November of last year. The message is simple: You should buy and hold… even though it can be hard not to panic-sell during sharp corrections like those we’re seeing today.

Dear Early Investor,

The key to making money in cryptocurrency is simple.

Buy. Hold.

That’s it.

Yes, you need good security too. But the most important thing is simply being able to hold on during volatile years.

Many are tempted to take profits after they’re up 2X or even 5X. Both would be a mistake (unless you desperately needed the cash).

Let me explain why…

Cryptocurrencies are a (potential) monetary revolution. Bitcoin could become a common investment asset and value transfer vehicle.

As I often point out, ownership today is tiny, with far less than 1% of the population owning any cryptocurrency at all.

But adoption is accelerating incredibly fast. Let’s look at some metrics.

Coinbase, the largest U.S. cryptocurrency exchange, was adding around 55,000 new accounts per day last November.

In a month, that’s 1.7 million new crypto (mostly bitcoin) users.

Let’s say half of those actually invest, and that they invest $3,000 on average (less than half a bitcoin). I suspect this may be a conservative average, but it’s hard to say.

This influx of new buyers from Coinbase would add more than $2.5 billion in buying pressure per month (if they each bought less than half a bitcoin).

The total value of all 16.6 million bitcoins in the world today is around $140 billion, with each coin being worth around $8,315 as I write this.

On the supply side, 1,800 bitcoins are currently being “mined” per day. Not all of those are sold, but let’s pretend they are for this example. That’s $15 million in selling pressure from new coins per day. In a month, that’s $449 million worth of new bitcoins mined.

So from just one exchange, we have perhaps $2.5 billion in new buying pressure. And selling pressure from new coins is just around $449 million.

Let’s also factor in the following:

  • Bitcoin owners are loyal and tend to stick around.
  • There are dozens of other large crypto exchanges around the world.
  • There’s been an influx of 130-plus hedge funds looking into crypto.
  • There will only ever be 21 million bitcoins.
  • CME Group has launched crypto futures.
  • Now that crypto futures are live, bitcoin ETFs are likely to follow.
  • The big money players are dipping their toes in this market.

And there you have a recipe for a feeding frenzy of epic proportions.

Upside for Altcoins

Cryptocurrency owners tend to fit a pattern: They buy bitcoin first and fall in love with the idea of independent money.

Holders tend to do very well on their bitcoin, and eventually some of these profits make their way into “altcoins,” or alternative cryptocurrencies.

The lure of altcoins is simple. Many of them have borrowed from bitcoin’s code (it’s free to use), but have improved it in important ways.

They’re trying to beat bitcoin in transaction speed and cost (and a few are succeeding wildly). Competitors like Ethereum create additional functionality, such as the ability to execute “smart contracts” on the blockchain, leading to endless potential applications.

Bitcoin will always have a special place in my portfolio. I’ll always own some. But much of my time is now spent analyzing its competitors.

It’s an absolutely fascinating field. Competition keeps the technology moving very fast. Some of the most talented developers in the world are racing to make their coins the best.

To learn more about altcoins, you can check out our Crypto Asset Strategies service. We have a portfolio of four altcoins, user guides, research reports and more.

I think we’re just getting started.

Good investing,

Adam Sharp
Co-Founder, Early Investing

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Source: Early Investing 

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Wondering Why Your Package is Late? Stocks to Buy for Trucking Boom

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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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

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