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Stocks shaky as oil slump, ‘hard’ Brexit fears dim mood

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| SINGAPORE

Asian stock markets were on the back foot on Tuesday as risk appetite evaporated overnight after the year’s strong start, with equities retreating, oil markets roiled by a supply surge and the pound sliding on renewed concerns about a “hard” Brexit.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was flat in early trade.

Japan’s Nikkei .N225 dropped 0.2 percent as investors took refuge in the safe-haven yen.

Oil prices on Monday posted their biggest one-day loss in six weeks amid fears that record Iraqi crude exports in December and rising U.S. output would undermine OPEC’s efforts to curb a global supply glut.

The Organization of the Petroleum Exporting Countries agreed in November to cut output for the first time since the global financial crisis more than eight years ago.

Iraq’s oil ministry emphasized that the high levels would not affect the country’s decision to cut January production to comply with the OPEC agreement.

But sources told Reuters that Iraq’s State Oil Marketing Company had given three buyers in Asia and Europe full supply allocations for February.

“It’s unusual to have these agreements last for very long because inevitably someone cheats,” said Daniel Morris, senior investment strategist at BNP Paribas Investment Partners.

“It’s certainly conceivable that the (OPEC) agreement falls apart and you get more production than anticipated in addition to already thinking that it should be lower because of dollar strength.”

Last week, U.S. energy companies added oil rigs for a 10th week in a row, Baker Hughes data showed, with some analysts expecting the U.S. rig count will rise to 850-875 by the end of the year.

U.S. crude CLc1 slumped 3.8 percent on Monday but were steady early on Tuesday, up 0.1 percent at $52.02 a barrel.

Global benchmark Brent LCOc1 also dropped 3.8 percent to $54.82 a barrel on Monday.

In currencies, sterling GBP= slumped 1 percent on Monday, extending Friday’s 1.1 percent slide, after British Prime Minister Theresa May said on Sunday the country would not be keeping “bits” of European Union membership, without providing more detail on her strategy.

May’s comments stoked fears of a “hard Brexit”, in which border controls are prioritized over market access.

EU officials say Britain cannot have access to its single market of 500 million consumers without accepting the principle of free movement and have repeatedly warned May against trying to “cherry pick” the profitable parts of their union.

The pound was fractionally higher at $1.2164 early on Tuesday.

The drop in risk appetite pushed the dollar lower against the safe-haven yen.

The U.S. currency was down 0.28 percent to 115.67 yen JPY=D4 in early trade on Tuesday, after declining 0.8 percent on Monday.

The dollar index .DXY, which tracks the greenback against a basket of six global peers, edged down 0.1 percent to 101.85, extending Monday’s 0.3 percent loss.

The euro EUR=EBS climbed 0.1 percent to $1.0588 on Tuesday.

Gold shone amid investors’ quest for safety. Spot gold XAU=, which jumped to a more than one-month high on Monday, added 0.1 percent to $1,182.24 an ounce in early trade on Tuesday.

 

(Editing by Shri Navaratnam)
Published at Tue, 10 Jan 2017 01:02:07 +0000

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HMD Global launches first Nokia smartphone

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HMD Global launches first Nokia smartphone

HMD Global, the Finnish company that owns the rights to use Nokia’s brand on mobile phones, announced on Sunday its first smartphone, targeted for Chinese users with a price of 1,699 yuan ($246).

The launch marks the first new smartphone carrying the iconic handset name since 2014 when Nokia Oyj (NOKIA.HE) chose to sell its entire handset unit to Microsoft (MSFT.O).

The new device, Nokia 6, runs on Google’s (GOOGL.O) Android platform and is manufactured by Foxconn (2354.TW). It will be sold exclusively in China through online retailer JD.com (JD.O), HMD said.

“The decision by HMD to launch its first Android smartphone into China is a reflection of the desire to meet the real world needs of consumers in different markets around the world… it is a strategically important market,” HMD said in a statement.

Nokia was once the world’s dominant cellphone maker but missed the shift to smartphones, and then chose Microsoft’s Windows operating system for its “Lumia” range.

After the 2014 deal, Microsoft continued selling cheaper basic phones under Nokia’s name and Lumia smartphones under its own name, but last year, it largely abandoned both businesses.

HMD in December took over the Nokia feature phones business and struck a licensing deal that gave it sole use of the Nokia brand on all phones and tablets for the next decade.

 

It will pay Nokia royalties for the brand and patents, but Nokia has no direct investment in HMD. Nokia Oyj is currently focused on telecom network equipment business and technology patents.

HMD CEO Arto Nummela, who was once responsible for Nokia’s sales and product development, told Reuters last month that HMD aims to be one of the key competitive players in the smartphone business where it faces tough competition from Apple (AAPL.O), Samsung (005930.KS) and dozens of other players.

 

HMD launched some new Nokia basic phones last month. It said on Sunday it was looking to launch more new products in the first half of the year.

 

(Reporting by Jussi Rosendahl and Eric Auchard)
Published at Sun, 08 Jan 2017 00:40:30 +0000

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Rising Markets and Healthy Markets

 

Rising Markets and Healthy Markets

Friday was an interesting day in the US stock market.  The major averages encountered some early weakness in the New York session, but moved higher in the afternoon and closed at multi-week highs.  Upticks among all NYSE stocks only modestly outnumbered downticks, however, and advancing stocks were actually outnumbered by declining ones.  As we can see from the excellent Finviz graphic, market capitalization was a major driver of the day’s action.  Mega cap stocks–the very largest companies–were quite strong on the day, whereas the smallest micro, nano, and small cap shares were down on the day.

A psychologist views the health of a person across the totality of that person’s life.  Someone might be successful in the work arena, but suffer a highly conflicted marriage, social isolation, and declining physical health.  That is not what a psychologist would regard as a strong and healthy life.  Conversely, a person firing on all of life’s cylinders–work, relationships, personal interests, physical health–is likely to sustain the overall well-being needed for a continued successful life.

So it is in the market.  A rising market that is lifting all boats is a healthy market, and frequently we see further upside momentum from such markets.  That was true at the start of this week, when a broad range of shares participated in the market strength.  Friday was a market firing on one cylinder.  That is not how healthy engines behave.

To be sure, one day does not make a market.  Rather, we look at patterns of sector and capitalization performance to gauge the underlying strength and weakness of markets.  Mid-cap and small cap shares are thus far not confirming recent market strength, as we can see from their charts (MDY; IJR).  Nor are we seeing commensurate strength among such sectors as raw materials (XLB), retail (XRT), consumer staples (XLP), and energy (XLE).  Headlines may focus on Dow 20,000, but my eye is also on the breadth of market strength.  

Further Reading:  Trading Psychology and My Upcoming February Seminar

Published at Sat, 07 Jan 2017 11:13:00 +0000

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BMO Capital Upgrades Western Digital

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BMO Capital Upgrades Western Digital

By James Garrett Baldwin | January 6, 2017 — 7:04 PM EST

On Jan. 5, BMO Capital analyst Tim Long upgraded shares of Western Digital Corp. (WDC) to Outperform. The analyst also raised his price target from $66.00 to $90.00 per share. According to TipRanks.com, Long is a four-star analyst with a 59 percent success rate and an average return of 6.1 percent.

In a research note released on Thursday, Long cited increasing demand in flash-storage devices for the higher price target. Long also projected improving profit margins in the wake of the company’s acquisition of SanDisk Corporation. The $90.00 price target represents potential upside of 27.1 percent from the stock’s closing price of $70.83 on Friday, Jan. 6.

“We expect to see the return of organic revenue growth in [the fiscal year 2017] fueled by continued demand for flash in a supply-constrained environment, the catching up on 3D NAND, high capacity HDDs and favorable customer relationships,” Long wrote, according to StreetInsider.com. “The continued margin expansion from HGST and SanDisk synergies will help drive further earnings growth.”

During CES 2017 in Las Vegas, the company unveiled a new 256-gigabyte flash drive called the SanDisk Extreme Pro USB 3.1 Solid State Flash Drive. The firm says it is the fastest USB flash drive it has ever developed and can transfer information at up to 420 megabytes per second.

The upgrade from BMO Capital came the same day that analysts at Guggenheim initiated coverage of the company, set a Buy rating and issued a price target of $100.00. According to Fox Business, Guggenheim analysts called WDC stock their “best idea in IT Hardware & Mobility.”

On Wednesday, Brean Capital analyst Ananda Baruah reiterated a Buy rating and set a price target of $100.00 per share. (See also: Brean Capital Rates Western Digital a Buy.)

According to TipRanks.com, WDC stock is rated a consensus Moderate Buy. Among 22 analysts, 17 have rated the stock a Buy and five analysts have rated it a Hold. The consensus price target is $78.00 per share. That figure represents potential upside of 10.83 percent from Friday’s closing price. (See also: Understanding Analyst Ratings.)
Published at Sat, 07 Jan 2017 00:04:00 +0000

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Developing Your Trading Psychology Process

 

Developing Your Trading Psychology Process

Many traders work on developing a trading process that captures what they define as opportunity and how they want to implement that opportunity. 

How many traders have a process for trading psychology?  As I note below, this will be the topic of an upcoming four hour seminar for traders at Trading Expo.

A trading psychology process is one in which we systematically engage in the activities that place us in a peak performance mindset.

That means we need to study our mindsets and identify the factors that aid our performance and factors that hinder.  Once we identify what helps us be in the right mindset for trading, we can begin to assemble those elements into repeatable processes.

One of the keys to success is creating processes that are so intrinsically rewarding that you will *love* engaging in them.  That is what helps you engage in the right activities daily, and that is what creates positive habit patterns.

Some of the elements of peak performance that I’ve observed among successful traders include:

*  Pre-trading rituals to prepare for various market scenarios;
*  Meditation, biofeedback, self-hypnosis and similar activities to increase our focus;
*  Mental rehearsal of plans for the day;
*  Physical exercise to be energized for the day;
*  Taking breaks to renew concentration and stay in the right mindset;
*  Constructive self-talk through the trading day;
*  Looking at markets through multiple lenses to see fresh sources of opportunity and threat.

It’s when we assemble these kinds of practices into daily routines that we take control of our trading psychology.

So, about that trading psychology seminar:

On February 26th, I’ll be at the New York City Traders Expo and will offer a four-hour workshop on the best practices of best traders–and how we can implement them in our own trading.  The beauty of a four-hour workshop is that we will have ample time for coaching:  applying the ideas to our specific situations and finding ways to create processes we will so love that we will naturally make them daily routines.

The bottom line is that trading psychology has to be something we do, not just something we think about.  I look forward to working with you on the doing!

Further Reading:  Four Pillars of Trading Process

Published at Fri, 06 Jan 2017 09:57:00 +0000

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Gold Stocks Shine in 2017

by Stevebidmead from Pixabay

Gold Stocks Shine in 2017

By: Adam Hamilton | Fri, Jan 6, 2017


The gold miners’ stocks are rocketing higher again after suffering a rough few months. Following sharp selloffs on gold-futures stops being run, the Trumphoria stock-market surge, and a more-hawkish-than-expected Fed, this battered sector had largely been left for dead. But gold stocks’ strong fundamentals finally overcame the dismal herd sentiment last week, paving the way for this sector to shine again in 2017.

This “shine again” assertion likely seems dubious to casual observers, since the gold miners’ stocks suffered a miserable Q4’16. The leading HUI NYSE Arca Gold BUGS Index plunged 21.1% in a quarter where the benchmark S&P 500 broad-market stock index surged 3.3%. Naturally gold miners’ profits are fully dependent on gold prices, and this metal fell 12.7% in Q4 which proved one of its worst quarters ever.

Thus no sector has been more out of favor in recent months than precious metals.  Gold and therefore gold-stock bearishness abounded, with bullish outlooks dwindling near nonexistent. But viewing gold stocks solely through the extremely-distorted post-election lens is a serious mistake. Despite their sharp Q4 selloffs, this sector as measured by the HUI led the markets by still soaring 64.0% higher in full-year 2016!

If any other sector like technology or financials or even energy had seen such dominating performance last year, the financial media would be endlessly extolling it. But not gold, it’s just too contrarian. 2016 was a solid year for gold, with its 8.5% rally nearly catching the S&P 500’s 9.5%. As of Election Day, gold was still up 20.3% year-to-date which trounced the 4.7% of the S&P 500. Gold really did shine last year!

The highlight of gold’s first up year since 2012 was certainly the first half.  Between a 6.1-year secular low in mid-December 2015 on highly-irrational Fed-rate-hike fears and early July, gold powered 29.9% higher in its first bull market since 2011. And over roughly that same 6.5-month span, that leading HUI gold-stock index soared 182.2% higher! Gold stocks’ stellar performances dominated the markets last year.

Nearly a year ago as the HUI fell to miserable 13.5-year secular lows, I advised that a major new gold-stock bull was imminent. Last January’s gold-stock prices were fundamentally absurd relative to this sector’s underlying earnings power even at then-prevailing gold prices.  A similar extreme sentiment-distorted pricing anomaly just happened last month. So 2017’s gold-stock setup is just as bullish as 2016’s proved!

Sadly most traders succumbed to the recent groupthink bearishness to foolishly bury their heads in the sand regarding gold stocks. The same thing happened a year ago. Speculators and investors alike are always ignoring the most-beaten-down sectors which usually have the greatest upside potential. So it’s incredibly important to get up to speed on gold stocks as 2017 dawns, before they are bid far higher again!

Maintaining perspective is the key to overcoming the dangerous herd emotions of greed and fear. They convince traders to wrongly buy high and sell low, ultimately leading to catastrophic losses. But armed with the big picture, it is much harder to fall into the trap of extrapolating recent performance out into the indefinite future. This first chart looks at the gold-stock bull over the past year rendered in HUI terms.

Gold-Stock Bull 2016-2017

After nearly tripling in just over a half-year by early August, the red-hot gold stocks were indeed due for a serious correction as I warned in July. Infected with rampant greed and wildly overbought, this sector soon sold off hard in August. Sharp corrections in bull markets are totally normal and very healthy, as they bleed away excessive greed to keep sentiment balanced. After that gold stocks stabilized in September.

But as October dawned, an anomalous adverse event slammed them out of the blue. The gold-futures speculators who dominate short-term gold trading must deploy stop losses to protect themselves from these hyper-leveraged trades.  They had a big mass of stops set near $1300, which had proven strong support for gold since it soared in late June on that Brexit-vote surprise. That was a logical level to protect capital.

After drifting lower in late September, gold finally slipped into that futures-stop-infested zone around $1300 in early October. The consequential stops triggering soon cascaded, and gold’s sharp selloff became self-feeding. The resulting mass stopping quickly spilled into gold stocks, causing the HUI to plummet 10.1% on October 4th! While painful, that surprise event was an extreme anomaly that wasn’t sustainable.

Indeed gold stocks soon stabilized again, with buyers returning near their key 200-day moving average and parallel bull-market-uptrend support in October.  Gold and its miners stocks climbed on balance right into election night, when they soared in futures and overseas trading as Trump took the lead in Florida.  All pre-election market behavior strongly suggested gold would surge if Trump somehow managed to win.

American gold futures blasted 4.8% higher from that afternoon’s close on election night, hitting $1337. And over in Australia gold stocks were soaring 15%+!  But later that very night as Clinton conceded to virtually eliminate the risk of a contested election, the US stock markets started to rally sharply out of limit-down 5% S&P-500-futures losses. And as the anti-stock trade, gold was hammered on that stunning reversal.

Gold is a unique asset that moves counter to the stock markets, making it essential for diversifying stock-heavy portfolios. Gold investment demand naturally surges when stock markets weaken, as gold’s gains help to offset stock losses. But when stock markets seemingly do nothing but rally indefinitely, investors soon forget about prudently diversifying portfolios. So sharp stock rallies temporarily kill gold demand.

As gold dropped in the days after the election surprise on the Trumphoria stock-market rally, the gold stocks were blitzed again with another mass stopping.  On November 10th and 11th, the HUI plummeted 7.8% and 8.0%! These horrific losses were the final straw for most gold-stock investors, destroying their will to remain in such a volatile sector. So gold stocks went from loved in mid-2016 to despised in mid-November.

But again perspective is crucial. How often does a radical outsider like Trump run for and actually win the US presidency? Nothing like that has ever happened before. Any market selloff driven by an extreme anomaly is never sustainable. Gold stocks didn’t plunge because their fundamentals were failing, but because an epic surprise post-election stock-market rally seduced investors out of gold back into lofty stocks.

Again since that extreme gold-stock selloff was purely sentimental and had nothing to do with the hard fundamental realities of the gold-mining industry, these battered stocks quickly stabilized. Despite the stock-market euphoria and resulting gold antipathy, the HUI ground sideways for an entire month from mid-November to mid-December. The unjustified extreme gold-stock selling had largely exhausted itself.

But on December 14th, the Fed surprised on the hawkish side so gold and gold stocks took another hit. While traders had universally expected the Fed to hike rates for the second time in 10.5 years, they did not expect elite Fed officials to forecast three more rate hikes in 2017 instead of two previously. So yet again gold stocks were crushed in emotional fear-drenched selling, ultimately pummeling the HUI to 163.5.

Those were essentially February levels, last seen on the first trading day of March. While that post-Fed selloff wasn’t an extreme anomaly like the early-October and post-election ones, it was devastating to already-tattered gold-stock psychology.  An astonishing 2/3rds of gold stocks’ bull market in the first half of 2016 had been erased! The gold miners were universally hated, the pariahs of the investment world.

But that didn’t make any sense at all. As of its very closing low the day after last month’s Fed decision, the gold stocks as measured by the HUI were still up a fantastic 47.0% year-to-date! That compares to just 10.7% for the S&P 500, and this sector likely remained the top performer in 2016.  In any other sector in all the stock markets, traders would be salivating at buying the dip after such a supremely-anomalous selloff.

Instead of fretting about a 42.5% drop over 4.4 months largely driven by two unrepeatable events, traders should’ve been remembering gold stocks’ powerful first-half gains. Back in July and August when the gold stocks were high, investors and speculators alike were falling all over themselves to deploy capital to chase gains. But they were nowhere to be found when these miners’ stocks plunged to fire-sale prices.

I can’t help but marvel at this glaring disconnect. I’ve spent decades actively speculating in the stock markets, and have shared our contrarian research via my financial-newsletter business for 17 years now. The most-shocking revelation I’ve learned is how susceptible to groupthink psychology the vast majority of investors and speculators are. They love to buy high when greed reigns, but refuse to buy low as fear mounts!

Last summer traders were eagerly rushing to buy gold stocks high, to chase the strong gold-stock gains. Yet just a few months later when these very-same elite gold miners were deeply on sale for 40%+ off, these same traders who loved them last summer wanted nothing to do with them. What is so hard to understand about buying low and selling high?  Buying low means embracing fear when few others will buy.

Fully wrapped up in popular bearish sentiment, traders totally lost sight of the gold-stock fundamentals in much of November and December.  I did my best to help them overcome that, spending long weeks in late November and early December digging deeply into hard gold-mining fundamental data from these companies’ just-published third-quarter financial reports. Yet that super-important research fell on deaf ears.

I dug deeply into the top 34 component companies of each of the dominant gold-stock ETFs, the GDX VanEck Vectors Gold Miners ETF and the GDXJ VanEck Vectors Junior Gold Miners ETF. It turned out in Q3’16 these elite GDX major gold miners reported average all-in sustaining costs of $855 per ounce. And the elite GDXJ junior gold miners weren’t much worse at $911 per ounce. These numbers are crucial.

All-in sustaining costs reveal what it costs the gold miners, individually or as an industry, to maintain and replenish their current operations. Between Election Day and year-end, the gold price averaged $1177 per ounce. Extending to all of the dismal Q4’16, that climbed to $1218. And even at worst after the Fed decision, gold only briefly fell to $1128. None of these gold levels were remotely close to threatening $855!

Even on gold’s worst day in Q4, the elite gold miners of GDX were still earning big profits of $273 per ounce. That equates to an amazing 24% profit margin that most industries would sell their souls for. At the Q4 average gold price, these earnings were fully a third higher at $363 per ounce! Yet the irrational fear was so great that gold stocks were battered back to prices first seen in July 2003 when gold traded near $360.

Stop and think about that for a second. Just a couple weeks ago, in a quarter where the gold miners likely earned $363 per ounce mined after all expenses, their stock prices were trading at levels first seen 13.4 years earlier when the entire gold price was less than current profits! The only words that come to mind to describe this are ridiculous, ludicrous, and absurd. The recent gold-stock prices weren’t righteous.

For 7 weeks in a row I wrote comprehensive essays explaining this extreme gold-stock anomaly, and thus what radical upside the gold stocks had. As always I put my money where my mouth was, buying and recommending 8 new specific gold-stock and silver-stock trades on December 20th and 4 more on December 27th to the subscribers of our weekly Zeal Speculator newsletter. We also added new call options.

On December 31st I extended the buy recommendations to our monthly Zeal Intelligence newsletter with 5 new gold-stock and silver-stock trades.  The incredible opportunities in these beaten-down gold stocks trading at fundamentally-absurd prices were explained in depth in real-time to our subscribers as they happened. Prudent contrarian traders who listened instead of ostriching are now making out like bandits.

Being so close to year-end, I didn’t expect the new investment buying to flood into gold stocks until the new year. But it’s always important to get deployed before everyone else catches on, as that’s when the buy-low opportunities are the greatest. And out of the blue on no news, gold stocks started rallying on the day before the long Christmas weekend. That strong contrarian buying persisted for most of last week.

And as 2017 dawned this week, investors immediately started looking for deeply-undervalued sectors to position in for this new year. And the still-beaten-down but-quickly-recovering gold stocks won a sizable portion of those capital inflows despite their tough fourth quarter. As of the middle of this week, in less than 3 weeks since its extreme post-Fed low the HUI has already catapulted an amazing 17.6% higher!

As always the stocks of the smaller gold and silver miners with superior fundamentals we specialize in enjoyed gains amplifying those seen in the major miners dominating the HUI and GDX. And despite the sharp rebound gold stocks have seen in recent weeks, they are just getting started. Odds are this sector will once again prove one of if not the best-performing sector in all of 2017, building on 2016’s strong gains.

As of the Wednesday data cutoff for this essay, the HUI was still only trading at 192.3. That merely took it back to levels seen in the immediate post-election plunge. The gold stocks still remain well below their strong 200dma and bull-market-uptrend support zones, and 32.3% under their early-August bull-market high per the HUI. The gold stocks’ upside potential from here remains vast, as evidenced on all fronts.

In addition to battered technicals, gold-stock sentiment was crushed to hyper-bearish levels late last year. It will take a long time and a lot of rallying to eradicate that excessive fear and restore sentiment balance to this sector. And fundamentally, gold stocks remain wildly undervalued relative to the profits they can spin off at prevailing gold prices. A quick proxy for that is the HUI/Gold Ratio, rendered here.

HUI/Gold Ratio 2003-2017

I’ve often discussed this chart extensively in the past, including nearly a year ago when calling a new gold-stock bull the very week 13.5-year HUI lows were witnessed.  In a nutshell, the HUI/Gold Ratio distills the key fundamental relationship between gold prices, gold-mining profits, and therefore gold-stock price levels into a single line. Gold-stock prices tend to trade in a range relative to underlying gold levels.

On the day after the Fed’s hawkish surprise last month, the HGR fell to 0.145x.  In other words, the HUI closed at 14.5% of gold’s close. Outside of the extreme record HGR anomalies seen in the last half of 2015, that was among the lowest HGR levels ever. Back in mid-January 2016, the HGR briefly fell to an all-time low of 0.093x. But such crazy lows are unsustainable sentiment-driven anomalies, temporary distortions.

As of the middle of this week, the HGR has still only recovered to 0.165x.  From 2009 to 2012, which were the last normal years between 2008’s stock panic and 2013 when the Fed’s radical QE3 started to levitate the stock markets and crush gold, the HGR averaged 0.346x. So merely to mean revert back up to normal levels relative to today’s prevailing gold prices, the HUI still needs to rally another 109% from here!

But that’s far too conservative for a couple major reasons. All mean reversions out of extremes tend to overshoot proportionally in the opposite direction.  So the abnormally-low HGR levels in recent years driven by extreme fear will almost certainly yield to abnormally-high levels in coming years fueled by excessive greed. A proportional overshoot yields a topping HGR target of 0.599x, for another 262% HUI rally.

And gold itself isn’t going to remain at the artificially-depressed low levels seen since the election. Gold-futures speculators will return with a vengeance as the wildly-overcrowded long-US-dollar trade reverses dramatically in 2017. And gold investors will flock back as the bubble-valued US stock markets inevitably roll over into their long-overdue bear. Thus gold is looking at 2017 gains far better than those seen last year.

As gold mean reverts higher, gold-mining profits greatly leverage and amplify its gains. Gold-mining costs are largely fixed when mines are planned. That’s when engineers decide which ore bodies to mine, how to dig to them, and how to process that ore. This determines how much capital investment is necessary to bring mines online, huge fixed costs.  After that, variable operating costs don’t fluctuate too much.

Plugging higher gold prices into any HGR target, either an unlikely strict mean reversion or a very-likely proportional overshoot, yields commensurately higher gold-stock price targets. The math is simple. Take any gold level you find likely in the coming years, multiply it by 0.346x or 0.599x, and you get the HUI levels that can support. The battered gold stocks are likely only just starting a mighty new multi-year bull market!

You can certainly ride the coming massive gold-stock gains in those leading GDX and GDXJ gold-stock ETFs. But at best they will mirror sector gains, as they are over-diversified and held back by too many underperforming gold stocks with inferior fundamentals.  A carefully-handpicked portfolio of elite gold and silver miners with superior fundamentals will see gains dwarfing those of the gold-stock ETFs and indexes.

At Zeal we’ve literally spent tens of thousands of hours researching individual gold stocks and markets, so we can better decide what to trade and when. As of the end of Q3, this has resulted in 851 stock trades recommended in real-time to our newsletter subscribers since 2001. Fighting the crowd to buy low and sell high is very profitable, as all these trades averaged stellar annualized realized gains of +24.1%!

In order to reap success like this, you have to stay informed all the time. You can’t abandon gold stocks when they are weak and out of favor, as that is when the greatest buying opportunities arise. An easy way to stay abreast is through our acclaimed weekly and monthly newsletters.  They draw on our vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. For only $10 per issue, you can learn to think, trade, and thrive like a contrarian. Subscribe today, and deploy in our new stock trades before they power far higher!

The bottom line is gold stocks are really set to shine in 2017, as early trading is already proving. This sector was just battered to fundamentally-absurd price levels in the wake of the election surprise. With gold-mining earnings remaining strong, the recent gold-stock lows were fully driven by extreme bearish sentiment. Such fear anomalies never last, always paving the way for massive mean reversions higher.

The latest one has already started, and gold stocks still have easy potential to at least double from here even at low prevailing gold prices. But as the overbought stock markets and US dollar inevitably reverse lower this year, gold’s own bull will resume. Higher gold prices will greatly increase the profitability of gold mining, and fuel a major new multi-year gold-stock bull.  As always the early investors will earn fortunes.


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Adam Hamilton

Adam Hamilton, CPA
Zeal LLC.com

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Mr. Hamilton, a private investor and contrarian analyst, publishes Zeal Intelligence, an in-depth monthly strategic and tactical analysis of markets, geopolitics, economics, finance, and investing delivered from an explicitly pro-free market and laissez faire perspective. Please visit www.ZealLLC.com for more information, www.zealllc.com/samples.htm for a free sample, and www.zealllc.com/subscribe.htm to subscribe.

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Published at Fri, 06 Jan 2017 17:15:36 +0000

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Futures flat as investors await jobs data

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By Yashaswini Swamynathan

U.S. stock index futures were little changed on Friday as investors remained cautious ahead of a crucial monthly jobs report that would provide clues on the pace of interest rate hikes this year.

Hiring in the U.S. public and private sector is expected to have remained flat at 178,000 in December, a report from the Labor Department at 8:30 a.m. ET (1330 GMT) is likely to show.

Federal Reserve policymakers had agreed that President-elect Donald Trump’s fiscal stimulus measures could prompt a faster rate of interest rate hikes than previously anticipated, according to the minutes of its December meeting released on Wednesday.

Chicago Fed President Charles Evans and his Dallas counterpart Robert Kaplan are scheduled to speak at separate events on Friday and could provide their take the outlook for interest rate hikes.

Traders see a more than 70 percent chance of at least three rate hikes this year, according to Thomson Reuters data. Strong nonfarm payrolls data could increase those bets.

Even with a brightening economic outlook, investors are now looking for further evidence to buy into a market that some analysts say could be poised for a correction.

The S&P 500 is trading at 17.5 times forward 12-month earnings, well above the 10-year median of 14.7 times, according to Thomson Reuters data.

Still, the Nasdaq Composite index .IXIC managed to close at a record high driven by gains in Amazon.com (AMZN.O). The S&P 500 and the Dow Jones Industrial Average marked their first down day for the year.

Amgen’s (AMGN.O) shares rose 4.6 percent premarket after a U.S. district judge blocked Sanofi (SASY.PA) and Regeneron (REGN.O) from selling their cholesterol drug, which Amgen said infringed its patents. Regeneron dropped 7.1 percent to $353.

Gap (GPS.N) rose 8.6 percent to $25.25 after the apparel retailer posted a surprise rise in December comparable store sales and said it expected 2016 profit to be above the higher end of forecast.

 

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty)
Published at Fri, 06 Jan 2017 12:22:59 +0000

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So, You Want to Earn Your CFA?

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So, You Want to Earn Your CFA?

By William Artzberger | Updated January 6, 2017 — 7:50 AM EST

It’s pretty easy to bump into someone in the financial profession who is really excited about entering the Chartered Financial Analyst (CFA) program. Sometimes they know what they are getting into, sometimes they don’t. They may have no idea how much time it takes or exactly how having the charter may help or hurt them.

Make no mistake about it – earning the CFA charter is a grueling process, so if the thought has crossed your mind that it might be worthwhile to begin the process, you had better check your preconceived ideas at the door and make sure your dream is not just a passing fancy. Before you commit, consider what it takes to earn the charter, how it will benefit you and your career, the negatives of going through the process and whether the pros outweigh the cons. In this article, we’ll help take you through that decision process.

What It Takes to Earn the Charter

The CFA Institute requires three steps to become a CFA charter holder. They include:

  1. Pass all three levels of the CFA exam in succession
  2. Acquire 48 months of “acceptable professional work experience”
  3. Join the CFA Institute, which includes completing a professional conduct statement and affiliate with a local chapter. (To view the complete list of steps, visit the CFA Institute’s website.)

For many people, the most difficult part of earning a charter is fulfilling the educational requirements. The CFA program consists of three exams encompassing a “candidate body of knowledge” (CBOK) that the CFA Institute believes is necessary for those in the investment profession.

The Levels and Time

The test for level I is given in the late fall and late spring, while the exams for levels II and III are given only once a year in the late spring. Candidates must pass each level before moving on to the next.

The statistics are grim. In any given year, anywhere from 40% to 65% of candidates for each level pass their exams. This means that even with the most optimistic scenarios, statistically, less than 30% of those who begin the CFA program as level I candidates actually go on to pass level III.

The investment of time is crucial. The CFA Institute estimates that the average candidate should expect to spend at least 250 hours preparing for each level (which, depending on when you start studying, is generally around six months). Most applicants will study 10-15 hours per week to prepare for each exam.

The Requirements

Once you’ve considered the time required to pass the levels, you must next look at the professional requirements that are needed. Before a candidate can receive the charter, he or she must have accrued 48 months (or four years) of acceptable work experience. Fortunately, the CFA Institute’s definition of acceptable experience is fairly broad, encompassing such areas as trading, economics and corporate finance. Still, there are a number of candidates who enter the program and are not in fields where anything they do can be construed to be within the realm of acceptable experience. Some of these candidates may find that while they are able to pass the educational requirements, they will not receive the charter because they do not have the required professional experience.

The Institute

Finally, before candidates can receive their charters, they must join the CFA Institute. If you need any help with this process, check out the CFA Institute’s website where this process is explained in detail.

The Pros

How Will the Charter Benefit You?

To help you decide whether to pursue the charter, let’s take a look at how it might be a benefit. First, there is the educational benefit; you will learn a great deal and add a great credential to your CV. Then, there is the boost to your reputation. People in the business know the time and dedication it takes to earn the charter. When they see that you have earned it, they will likely believe you have ability, dedication, ethical grounding and the hard, transferable analytical skills necessary to do the job in question.

There also may be financial benefits. You may see your salary increase after you’ve earned the charter or you may surpass other applicants who don’t have the charter when competing for a new job.The operative word here is “may.” Career success depends on a number of factors, including hard work and skill. Luck, dedication, political savvy and character have just as much to do with one’s success in the investment profession as educational background; so don’t view the charter as your golden ticket to financial paradise.

How Will the Charter Benefit Your Career?

There are a number of financial fields in which having the charter is a substantial plus. The obvious is investment management. As the investment industry continues to become more competitive (fewer positions) and more commoditized, it will become almost imperative for any credible investment manager to earn the charter.

Outside of investment management, there are a number of other professions in which charter holders will benefit considerably:

  1. Buy-side trader (investment management) or other buy-side professional positions
  2. Sell-side analyst (investment banking), associate, or other sell-side professional positions
  3. Business school professor
  4. Economist
  5. Financial advisor or financial planner

Beyond this list, there are a number of professions in which having the CFA Charter helps, but where it is not a career roadblock if the financial professional does not have it.

The Cons

The CFA charter is not a guaranteed path to riches and glory. Before taking the plunge, carefully consider several drawbacks to earning one:

The Time

Becoming a CFA is a huge investment in time – a minimum of 250 hours per year over three years. You will sacrifice time with family and friends and the pursuit of hobbies you enjoy. And after committing all that time, there is no guarantee that you will earn the charter.

The Cost

While this factor may not be a major consideration, it is worth pondering. A level I candidate will pay a one-time program enrollment fee plus an exam registration fee. Level II and III candidates will pay a registration fee as well. There is also the cost of the books and study programs you’ll have to buy. All together, you should expect to spend several thousand dollars each year you attempt the exams.

The Career

The CFA is not a panacea for an ailing career. If you’re enrolling in the program to jump-start a stalling career, you may want to look at other reasons your career is not moving forward. Perhaps before investing inordinate amounts of time and a not insubstantial amount of money into building your pedigree, you might choose to improve your soft skills such as work ethic and political suaveness.

Putting It All Together

A variation of the good old-fashioned cost-benefit analysis may be the best way to decide whether or not to undertake the program. On paper, plot out the costs versus the benefits of earning the charter. Carefully consider each point, both positive and negative, before ultimately making your decision. Your decision may also alter as your career changes. A lost promotion in five years may change the balance from not pursuing the charter to chasing it full steam.

(Why?)
Published at Fri, 06 Jan 2017 12:50:00 +0000

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The Importance of Trading With Focus

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By Skitterphoto from PixabayThe Importance of Trading With Focus

The Importance of Trading With Focus

I inadvertently conducted an interesting experiment yesterday while trading.  I traded from an enclosed office that was totally quiet and free of distraction.  Interestingly, that’s similar to the setting in which I typically conduct my meditation and biofeedback work.  Indeed, when I work on maintaining relaxed, concentration using biofeedback equipment, I select an isolated setting that allows me to maintain an unbroken focus.  The resulting “zone” state is one that I have found to be helpful for clarity of thought and decision-making.

So in trading from the removed office, I unwittingly recreated my cognitive gym environment.  Within a few minutes of following the market, I found myself doing *exactly* what I do in biofeedback:  slowing my breathing, making it more rhythmical, keeping still, sustaining a high degree of focus, and shutting off most internal dialogue.  

What I found was that, in this state, market movement seemed slower and clearer than usual.  When I am distracted–and especially if I’m frustrated–it seems as though I’m several steps behind the market.  Things happen before I make sense of market behavior, so I’m in a reactive mode.  When I was in the zone during yesterday’s trading, I felt on top of what the market was doing, where I was feeling the flow of buyers and sellers.  I was not thinking about buying, selling, making money, losing money, or P/L.  I was wholly immersed in the ebb and flow of what the market was doing.  At times, it felt as though I was one with the market.  In fact, the feeling was very similar to the feeling I’ve had when doing self-hypnosis exercises.

Relatively early in the session, the market pulled back and I could feel the attempts at selling fail to push prices lower.  I said out loud to myself, “We can’t break the opening lows.  The buyers are in control.”  That turned out to be a key insight for the day’s trading.

Trading psychology gurus emphasize the need to control emotion and negative thinking during trading, and I think that’s important.  Emotional self-control is necessary for good trading, but perhaps not sufficient.  What I was additionally observing was that a state of hyper-focus and enhanced concentration completely changed my experience of the market as well as my processing of market-related information.  In essence, I had turned the trading session into a biofeedback session and the calm focus changed how I viewed and responded to market activity.  I did not plan trades; I simply joined the flow of activity and exited when that flow shifted.

What if short-term trading is a function of pattern recognition and pattern recognition hinges upon our state of awareness?  How much effectiveness do we lose in trading by dividing our attention and so watering down our focus that we never truly enter the “zone” of information processing?  When we are super-focused, perhaps we create a cognitive environment in which trading psychology problems *cannot* dominate.

Published at Thu, 05 Jan 2017 09:59:00 +0000

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A Deadly Bias That Affects Active Traders

 

A Deadly Bias That Affects Active Traders

One of the most common biases I observe among short-term traders is one that looks for market movement.  Because most short-term traders trade directional moves, they naturally hope for moves that extend, that give the most potential profits.  A market that moves is a “good” market; one that offers little movement is “choppy” and poor for trading.  If we think of the dynamics of realized and implied volatility in the stock market, we can see that this long volatility bias is actually a bearish bias.  When it comes to market movement, the elevator moves more quickly in the downward direction than upward.  Not surprisingly, many traders root for reversals of market gains, hoping to profit from quick directional movement and the volatility of the downside.

This bearish bias can be deadly, as it leads traders to ignore the actual flow of supply and demand and color their market perceptions with their preferences.  More than once, I’ve heard traders complain that a move higher was “fake” or “manipulated” or caused by “machines”, thus discounting what the market was doing and instead sticking with a bias.

A good general rule is that the very largest market participants–think sovereign wealth funds, pension funds, asset managers, etc.–take the longest time horizons.  Their sheer size leads them to be investors, not just traders.  With that increased holding period comes an increased focus on fundamentals.  Global growth rates matter little for a 10-minute trade, but matter quite a bit for a 10-year investment.  The day trader doesn’t have to worry if we’re entering a deflationary or inflationary environment.  That same issue may shape much of an investor’s holdings.

This is why it’s helpful for even short-term traders to be aware of fundamentals and the big pictures that shape the behavior of investors.  If the big picture is favorable, oversold situations are likely to be viewed as value.  That will impact market trend and volatility, which percolate down to the shortest time frames.  

I hear considerable frustration from traders lately.  Some did not profit from the recent bull move to new highs and insist it must be reversed.  Some are not happy with the U.S. Presidential election results and look for things to collapse.  Some are just tired of sub-20 VIX markets.  A great check on frustration is to actually look at the economic data and trends that the largest market participants look at.  A site that curates this information effectively is A Dash of Insight.  If you check out the most recent posting, you’ll see a summary of the latest economic data releases, including which ones are showing increased strength and which ones are signaling weakness.  You’ll also see a host of macroeconomic indicators that track the likelihood of recession.  Over time, you can gain perspective on whether the economic picture is becoming more or less favorable–and that provides a window on how institutional participants are likely to respond when they see stock market strength and weakness.

I think you’ll be surprised when you look at the data.  A fresh look at information is a great antidote for confirmation bias and a great prod for open mindedness.  The best traders look for data that disconfirm their leanings; that is what helps them update views and not get locked in stale ones.

Further Reading:  Creativity and Innovation in Trading

Published at Wed, 04 Jan 2017 10:47:00 +0000

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BlackRock’s U.S.-based active funds post record 2016 withdrawals: Morningstar

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The BlackRock sign is pictured in the Manhattan borough of New York, in this October 11, 2015 file photo.REUTERS/Eduardo Munoz/Files

BlackRock’s U.S.-based active funds post record 2016 withdrawals: Morningstar

By Trevor Hunnicutt | NEW YORK

Investors pulled $19.3 billion from BlackRock Inc’s (BLK.N) U.S.-based actively managed mutual funds in 2016, Morningstar Inc estimates showed on Tuesday, a record high as the investment industry struggles to restrain an exodus to lower-cost investments.

The funds posted nearly $8.5 billion in outflows during the fourth quarter, the research service said.

An industry bellwether, New York-based BlackRock also owns one of the most prized businesses in asset management, its iShares exchange-traded funds franchise.

That business has profited from investor’s shift from active to passive funds. Many ETFs are relatively low cost and aim merely to track the market, not to beat it.

U.S.-based actively managed stock funds suffered $288 billion in withdrawals in 2016 through November, the largest on record, according to Thomson Reuters Lipper service. The figure tops outflows of $139 billion in 2015 and $218 billion in 2008.

On the passive side, stock index mutual funds and equity exchange-traded funds each attracted about the same amount of new cash, more than $112 billion apiece in 2016, Lipper said.

Earlier Tuesday, the world’s largest asset manager said it took in $140 billion into its ETF business overall during 2016, a new global record and larger than its rivals.

Some index-tracking ETFs charge as little as $3 annually for every $10,000 they manage, while the average charged by U.S. stock mutual fund managers is $131, according to data for 2015 from the Investment Company Institute trade group.

The active fund withdrawals come as BlackRock has been working to boost the investment performance of its stockpicking managers by introducing more data mining and rules-based investment techniques to its traditionalist teams, which it calls “Fundamental Active Equity.”

Performance showed signs of improvement in November, with the percentage of BlackRock funds holding the top Morningstar star ratings over three years increasing to 64 percent, up from 51 percent in October and compared to a 33 percent industry average, according to Credit Suisse AG.

BlackRock is slated to report its fourth quarter and full-year results on Jan. 13. The company did not respond to a request for comment.

(Reporting by Trevor Hunnicutt; Editing by Sandra Maler, Bernard Orr)
Published at Wed, 04 Jan 2017 00:35:37 +0000

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Tribune Media to Pay Special Dividend of $5.77

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Tribune Media to Pay Special Dividend of $5.77

Now this is a fine way to start the new year: Tribune Media (NYSE: TRCO), which holds a big portfolio of TV and digital assets including the WGN channel and Screener entertainment information service, on Tuesday declared a one-time, special dividend of $5.77 per share for both its class A and B shares.

All told, this will cost the company around $500 million. The payout closely follows its latest big-ticket deal — in late December it agreed to sell its Gracenote music and video metadata provider to media research incumbent Nielsen for roughly $560 million. Gracenote wasn’t exactly a long-held asset for Tribune Media; it struck the deal to buy the company in December 2013 from a unit of Sony for $170 million.

In its press release announcing the special dividend, Tribune Media said it will be funded from existing cash.

The nearly extraordinary payout will be happily accepted by shareholders, but concerns about the company’s fundamentals are sure to linger. In recent quarters, it has struggled with profitability, and in November, it cut its net profit guidance for fiscal 2016 (which it just completed). The share price is up only 6% over the past year, in sharp contrast to nearly 50% rise of tronc, the newspaper publishing and online media company Tribune divested from itself in 2014.

Tribune Media’s special dividend will be distributed on Feb. 3 to stockholders of record as of Jan. 13. At the current share price, it would yield 16%.

In addition to the special payout, the company also pays a regular quarterly dividend of $0.25 per share. This was most recently handed out at the beginning of last December.

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Published at Tue, 03 Jan 2017 22:10:03 +0000

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Glu Mobile Buys Game Company Plain Vanilla (GLUU)

Glu Mobile Buys Game Company Plain Vanilla (GLUU)

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Prospects for International Stocks, Value Stocks, and Bonds in the New Year

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By MichaelGaida from Pixabay

Prospects for International Stocks, Value Stocks, and Bonds in the New Year

By: Tom Madell | Tue, Jan 3, 2017


While any time of the year can prove to be a worthwhile time to consider changes to your investments, the start of a new year typically seems to arouse the most interest for this kind of activity. It is at this time that it has become clear which investments excelled in the prior year and which didn’t, perhaps suggesting the new year will follow suit.

But more astute than trying to jump aboard prior winners and shedding their losers, at this time of the year investors should be trying to anticipate what changes a new year might bring. Thus, while prior trends might continue, new events might shuffle previous outcomes, creating a whole new set of winners and losers.

Right now the biggest questions investors should be asking themselves are these: Is the existing investment backdrop around the world set to change under a seemingly hard-to-predict President Trump administration and if so, how, followed by what are the ramifications of near certain higher interest rates in the US and possible big political and economic shifts elsewhere, especially within Europe as a result of upcoming “Brexit” negotiations and several national elections?

In my opinion, it is still too early to be able to anticipate clear answers to these questions, not to mention whether any such changes brought about by such events will result in big changes to the existing investment climate we witnessed throughout much of 2016, at least through the pre-election period. However, some investors are already jumping into action under the assumption that they can already, even before the late Jan. Presidential inauguration, correctly anticipate the winners and losers of 2017, or even beyond.

Realistically, though, some of these assumptions might be thought of as resembling “if a, then b, and thus c,” such as, for example, the one regarding Trump’s proposed increased spending on roads, bridges, and airports: “If more infrastructure spending, then more growth, thus more gains for stocks.” In effect, not only has “a” come to pass, but then “b,” and then “c” must follow as a result in order to be correct. Such an analysis in advance of any these actual outcomes would appear to be a risk-laden proposition since it is possible that at least one of the three assumptions might turn out unexpectedly.

Therefore, a prudent course of action would appear to be, at most, acting in advance only on those investment outcomes deemed most highly likely, and waiting for further certainty on all others. Especially with all US stock indexes nearly at historic highs, additional purchases based on as of yet unconfirmed multiple cascading assumptions may have only a small upside potential for new investment gains vs. larger downside ones. And while international stocks, especially in Europe, could possibly be in for more trouble, selling the most underperforming multi-year categories of mutual funds, such as many international funds have been, often doesn’t turn out to have been wise move a year or two down the road.

While the above might be viewed as general guidelines, I will now focus on three fund categories that investors might fail to recognize as having the most potentially changed outlook, not only for 2017, but perhaps for at least several years ahead: international stocks, value stocks, and finally, domestic bonds.

International Stocks

Several years ago, investors were piling into international stock funds as advisors and pundits alike touted the benefits of diversification, often through international index funds and ETFs. For example, assets in the Vanguard Total International Stock Index (VGTSX) had, as of the end of the third quarter 2016, more than doubled over the prior three years, jumping 135%. Yet investors remaining in the fund over the entire period suffered with less than a +1% annualized return. While undoubtedly many of these recent investors will hold on in the hopes of better days ahead, one may wonder whether such results are indeed likely, or whether they are likely to continue to badly underperform the US markets. More up-to-date, over the last 3 years through year end, the annualized return on the average international fund has now become negative at about -2%.

So what will now help determine the future course of your international stock fund? As you may be aware,slow growth, and in some cases, especially so, such as in Japan, has characterized many of the major economies around the world. While generally good for international bonds, slow growth tends to hold back stocks. Looking forward, then, will growth start to improve in the most important world economies?

Within both Europe and Japan, central banks have been struggling to pull their economies out of near recessionary conditions for several years now by dropping interest rates with only mixed results. Will they be any more successful in 2017 than they have been previously?

Both regions are apparently more fully recognizing the need for more than just interest rate maneuvers now that such actions can hardly drop rates any further without causing potential disruptions to their economies. Increased government spending may thus begin to be more fully utilized as a necessary next step to promote more growth.

But a problem for US investors in these regions remains: As US interest rates are higher than in many of these countries, and likely set to go even higher, investors in most international funds do not always profit, or profit as much, from any increases in foreign stock prices. If the US economy does better than in these countries, and as projected interest rates rise more in the US, the US dollar tends to strengthen. Of course, while this has been happening most recently, it is only an assumption that we will have more of this in store for 2017 as President Trump attempts to successfully push the growth “button,” and does it faster and more successfully than our international cohorts.

When this happens, what this means is that US investors tend to lose additionally on their international stock returns, even if such stock prices themselves happen to hover near zero, or worse, actually fall. In fact, since the election of Donald Trump, during November alone, the value of the dollar rose by 3.5% in international markets and continued to gain even further in December, the most dramatically against the Japanese yen. This has resulted in little, if any, gains for US investors in foreign stocks, while US stock prices generally climbed. The markets are apparently anticipating an even further outpacing of growth and interest rates in the US than abroad, which tends to attract money from around the world into US stocks and bonds, continuing to hike the value of the dollar versus foreign currencies.

Thus, aside from the question of how well, or even if, international economies will recover from their growth droughts, one must consider whether the assumption of a continuing strengthening dollar will prove to be correct. Further, if the eurozone continues to suffer politically at the hands of “populist” forces that are not enamored either of a unified Europe nor a unified currency, namely the euro, the dollar could continue to rise, hurting US returns in European stocks. Then, too, the “Brexit” vote may eventually hurt Britain more than it currently has, creating similar drags on the U.K. economy and the British pound.

Finally, if Japan cannot successfully start to improve its economy, the rise in the dollar against the Japanese yen could continue to hurt US investors in international funds. In many such funds, Japan is the country whose percent of assets invested are generally second most, with assets invested in Europe and Britain combined occupying the top spot. For example, the Vanguard Total International Stock Index Fund (VGTSX), as well as its ETF counterpart, (VXUS), currently have 18% of assets invested in Japan, but over 42% invested in Europe of which about 13% is in the U.K.

The first question to be answered then is: Will the US economy continue to do better than elsewhere? The second is: Will the US even increase its current advantage, as potential pro-growth policies are pushed by the new president? Many investors are currently betting yes to both. So, does such a forecast imply that readers should lighten up on international stocks?

But muddying that prediction might be that international stocks have considerably more reasonable valuations than US stocks, with a forward-looking P/E ratio of about 15 for VGTSX vs. nearly 20 for the US total stock market (e.g. VTSMX). And, according to my own proprietary measures of valuation, almost all categories of US stock funds are somewhat close to a designation of overvaluation, which, when reached, would mean a recommendation of “Reduce.” International stock funds, while not showing particularly good prospects, are still considered “Holds.”

Also of interest is that growth in emerging market economies (with the exception of China) is expected to accelerate for the first time in six years according to the International Monetary Fund (IMF), potentially helping emerging market funds whose returns have been stuck just a little north of zero over the last five years. Investors are urged to consider adding to such holdings, or at least, broader international funds that have a relatively high percentage of emerging market stocks, such as VGTSX with approximately 19% in emerging markets; Vanguard International Growth (VWIGX) has slightly more at about 21%.

So here is my recommendation regarding international funds: While one might reduce allocations internationally marginally, especially to a troubled Europe, long-term investors should probably continue to hang on to well-diversified international funds and emerging market funds. Note that one of our recommended international funds, Tweedy Browne Global Value (TBGVX), employs a tactic called hedging to eliminate the negative effect of a rising dollar for US investors so it may be especially good choice if the above scenarios play out. On the other hand, if the dollar falls, funds without this tactic (that is, that are not hedged which includes most typical international funds) might be expected to be better bets. Several other international ETFs that use hedging have been recommended by me before, namely, WisdomTree Europe Hedged (HEDJ) and WisdomTree Japan Hedged (DXJ); both are doing better in the last few months than the typical non-hedged international fund.

Value Stocks

As discussed in previous Newsletters at my website (for example see last January’s Newsletter), up until recently growth funds had been outperforming value funds for quite a while. Both types of funds are often recognized (but not always) by the presence of “growth” or “value” in their names.

However, starting at the beginning of 2016, as I pointed out in the May 2016 Newsletter, the tide began turning, with value now exceeding growth. According to the Wall Street Journal, the average one year performance for multi-cap value funds in 2016 was 15.2 vs. only 1.8% for multi-cap growth funds, as of 12-30.

Delving further, using specific data for Vanguard index funds, in the large and midcap sphere VIVAX has outperformed VIGRX 16.8 vs. 6.0% while in the small cap realm, Vanguard Value Index (VISVX) has outperformed Vanguard Growth Index (VISGX) 24.7 vs 10.6% (thru year end). These performance discrepancies have gone from being only mild before the election to extreme in its aftermath.

What can explain this significant reversal which was apparently accelerated by Mr. Trump’s election, and more importantly, can one expect this trend to continue? Perhaps this: Growth stocks, historically, tend to outperform value in times of low growth and low inflation which certainly describes what we have had for many years now. However, value stocks tend to outperform during periods of higher growth and higher inflation.

Slowly but surely, both growth and inflation have been picking up in 2016. According to several sources, such as this one from a 2015 article, at different times during the economic cycle, one investing style tends to outperform the other:

“value … outperforms growth amid high GDP growth and high inflation, signifying that the market may be overheating. At that late stage in the cycle, businesses have increased capital expenditures and wages, primarily benefiting two of the largest value sectors – industrials and financials.”

Sure enough, these stock sectors have been among the strongest in 2016. Thus it appears that investors may be anticipating that the prior lower growth and lower inflation, which previously aided consumer spending, may now be expected to hinder it if they indeed start to kick in. And in fact, consumer-oriented stocks have done considerably more modestly in 2016 than industrials and financial stocks. Such consumer stocks, especially so-called consumer cyclical (or sometimes called consumer discretionary) stocks, are an important component of most growth category funds while much less so in value category funds.

If further renewed growth and subsequent inflation are on the horizon, as already started to show up prior to the election and as apparently are now being further projected by investors for the years ahead as a result of Trump’s campaign and post-election statements, investors may continue to drive value stocks higher than growth stocks. If so, this will be consistent with the likely outperformance we have foreseen for value stocks over growth stocks for quite a while now.

Domestic Bonds

During the first half of 2016, the average bond fund was still coasting along, doing even better over the prior 12 months than the average stock fund. However, by the end of the 3rd quarter, all that had started to change as interest rates began to rise, having the effect of dampening bond prices. As Election Day approached, the rising rate trend continued, possibly pushed along further by the prospect of upcoming Fed fund rate increases.

Now, well after Nov. 8, bond prices have taken a definite negative turn. So does this approximate six month downdraft in bond prices suggest that bond investors should be lightening up on their bond fund exposure?

It is important to recognize that the rise in interest rates from the extremely low levels that prevailed in mid-2016 likely did indeed signal an important turning point in rates. But even more important than what preceded, the election of Donald Trump, as discussed above, seemed to have caused aggressive investors, and perhaps many others, to assume that if Trump’s campaign promises were enacted, the economy would most likely undergo much more government stimulus along with lower taxes, all of which could tend to be inflationary and lead to higher interest rates.

Since higher rates almost always lead to lower bond prices, such investors are likely assuming further declines in bond prices, and coincidentally as well, higher stock prices since stocks might well be the main beneficiary of the expected economic stimulus and the resulting bond market outflows.

Given the already in place upward trend in interest rates from historically low levels, coupled with the projected “Trump effect” of increased economic activity, it does seem like a reasonable conclusion to assume that bonds, at least for now, have become a somewhat less attractive option within an investor’s portfolio. However, this urge to sell bonds should be tempered at least somewhat by the fact that the act of transferring money from bonds to stocks may turn out to be unwise at this time of near record high stock prices.

Bonds may still offer some value, especially once recognized that not all bond funds are “created equal,” and thus, that not all types of bond funds may necessarily produce poor returns going forward. Additionally, if interest rates do rise, so do dividend payouts, which over the long term provide the biggest component of bond fund total returns, not the price fluctuations which preoccupy investors who might focus more on short-term losses.

One useful guide may well be to consider a possible reversal from the kinds of bonds that have done particularly well or poorly over the last 3 years or so. In the former category are long-term bonds, especially government bonds, while over a similar period, short-term bonds of all types as well as inflation-protected bonds have shown unimpressive returns. If the investment climate is indeed changing, these latter types of bonds might be expected to outperform the former, and recently, this has indeed been the case.

Bond funds that suffer the most during a period of rising rates tend to be US government bonds, especially those with long maturity dates. Since many bond funds designed to mirror the broad bond market, such as the Vanguard Total Bond Market Index (VBMFX), have a relatively high proportion of US Treasury bonds, one might consider keeping such exposure particularly low.

Inflation-protected bonds, which have performed poorly over an extended period due to low measured inflation, now seem to be a relatively better bet than ordinary government bonds, although this does not guarantee one will necessarily get a positive return if we get a true bond bear market. In fact, since June 30th, they have suffered too, although not quite as much as non-inflation-protected bonds.

It would still appear that international bond funds make considerable sense since interest rates outside of the US are unlikely to be rising any time soon. To offset a negative effect on returns to US investors if the dollar continues to rise (as discussed above), a fund that tries to remove such a “currency effect,” that is, a fund that hedges such exposure seems to make the most sense, such as PIMCO For. Bond (USD-Hedged) Adm (PFRAX) or Vanguard Total International Bond Index (VTIBX).

High yield bond funds, which hold corporate rather than government bonds, tend to be less negatively affected by rising US rates. In fact, they may indeed profit if the US economy strengthens as they tend to correlate more highly with stocks than with many other types of bonds. After a rocky start to the year, they have greatly outperformed all other types of bonds in 2016.

Tax-free municipal bonds, although a type of government bond, still offer higher after-tax yields than most ordinary taxable bonds when your Federal tax bracket is currently 28% or more and you are investing for mainly for income. However, if the Trump administration is successful in lowering investors’ tax brackets, muni bonds may become less effective as a tax reduction tool, and therefore, may suffer a hit to their prices.

Finally, while lately, funds with mortgage-backed securities, such as Vanguard GNMA (VFIIX), have still suffered as interest rates have risen, they too have dropped less than other government bond funds. Thus, while the price of VBMFX has dropped about 5% since early July, VFIIX has dropped only about 3.5%. Looking forward, there appears to be moderately less risk in the latter fund than the former.


Refer to my January 2017 Newsletter article for my specific Model Portfolio recommendations


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Tom Madell

Tom Madell, Ph.D.
Publisher
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Published at Wed, 04 Jan 2017 02:56:08 +0000

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Xerox Shares Rise as Conduent Spinoff Is Finalized

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Xerox Shares Rise as Conduent Spinoff Is Finalized

Breaking up might be hard to do, but it can be lucrative for certain parties. That seems to be the case with document technology mainstay Xerox (NYSE: XRX). The company’s shares rose as it completed the spinoff of its business services assets into a new company, Conduent (NYSE: CNDT). The market’s early preference is clearly for the legacy company, as its stock closed up by 20% on the day while Conduent’s shares fell by nearly 7% on their first day of trading.

That, despite the fact that the shareholdings are similar — Xerox effected the split by distributing one share of Conduent stock for every five Xerox shares its stockholders owned. The record date for the distribution was Dec. 15. Investors might be concerned about a big, $1.8 billion transfer Conduent paid Xerox upon the split. The latter company will use those proceeds, in combination with cash on hand, to retire approximately $2 billion in debt.

In its press release formally announcing the finalizing of the split, Xerox CEO Jeff Jacobson said that it “sharpens our market focus and commitment to our customers.”

“I am confident the transformational actions we are implementing position Xerox for long-term success and unlocks shareholder value,” he added.

That remains to be seen, but overall, the move has to be considered positive for the core Xerox operations. Business services clearly weren’t a good fit with that profile, as evidenced by the company’s consistently declining annual revenues and withering net profits over the past few years.

Xerox announced the split almost one year ago. At the time, Xerox’s legacy document-technology business brought in around $11 billion in annual revenue, with the take for business services totaling roughly $7 billion.

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Published at Tue, 03 Jan 2017 23:00:03 +0000

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Wall St. pares some gains as oil prices drop

by bones from Pixabay

 

Wall St. pares some gains as oil prices drop

By Yashaswini Swamynathan

Wall Street rose on Tuesday as a post-election rally extended into the new year, but stocks pared some of their early gains after oil prices lost ground due to a strong dollar.

Oil prices fell from their 18-month high and were down more than 2 percent as the dollar surged to a 14-year high, supported by strong U.S. manufacturing data.

The retreat in stocks meant the Dow Jones Industrial Average pulled further away from the elusive 20,000 mark.

The Dow came within a hair’s breadth of the historic milestone in December as investors bet that President-elect Donald Trump would introduce market friendly policies such as tax cuts and simpler regulation.

The average rose to as much as 19,938.53 earlier in the session on Tuesday, helped by Goldman Sachs (GS.N) and Walt Disney (DIS.N).

At 12:31 p.m. ET (1731 GMT), the Dow Jones .DJI was up 34.3 points, or 0.17 percent, at 19,796.9, the S&P 500 .SPX was up 9.49 points, or 0.42 percent, at 2,248.32 and the Nasdaq Composite index .IXIC was up 22.74 points, or 0.42 percent, at 5,405.86.

“The market is picking up where it left off since the Trump presidency,” said Thomas Wilson, senior investment manager at Brinker Capital.

“What you are seeing is the market moving up in anticipation of fiscal expansion and a potential reflation trade that will replace what has been a monetary policy-driven market for the last several years.”

Tech stocks were the main drivers of the gains on Wall Street on Tuesday, with the S&P 500 technology .SPLRCT sector rising 0.5 percent and giving the broader index its biggest boost.

 

Healthcare .SPXHC stocks followed, with a 0.86 percent rise.

Ten of the 11 major S&P 500 indexes were higher, with the defensive real estate .SPLRCR and consumer staples .SPLRCS sectors bringing up the rear.

Utilities .SPLRCU, another defensive sector, was the only one in the red.

Verizon (VZ.N) gave the biggest boost to the S&P, rising 2.1 percent after Citigroup upgraded the stock to “buy”.

Marathon Petroleum (MPC.N) rose 5.2 percent to $52.99 after the company said it would explore a spinoff of its retail business, caving to pressure from activist investor Elliott Management.

Advancing issues outnumbered decliners on the NYSE by 1,974 to 931. On the Nasdaq, 1,595 issues rose and 1,240 fell.

The S&P 500 index showed 17 new 52-week highs and one new lows, while the Nasdaq recorded 106 new highs and 16 new lows.

 

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty)
Published at Tue, 03 Jan 2017 17:52:22 +0000

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How to Break Our Worst Trading Habits

 

How to Break Our Worst Trading Habits

Surveying the traders at SMB, Bella recently reported that the number one problem they had during the past year was forcing trades.  That is, they failed to wait for trades to properly set up and instead tried to front-run the patterns they were trading.  Bella then offered three ideas for traders looking to improve their patience and reduce their forcing of trades.  Those ideas include journaling, studying your “Playbook” of best trades, and taking breaks to speak with other traders.  Note how all of these strategies involve getting one’s nose out of the screen, stepping back, and gaining perspective.

What the traders are working on is self-control.  Generally, here’s what happens when traders force trades:

1)  A situation occurs that the trader personalizes in some manner.  The market moves and the trader blames himself/herself for missing the move.  Or the trader is stopped out and is concerned about taking a loss.  The situation gets the trader P/L focused and self-focused and no longer market focused.  This is very important.  Psychological problems in trading typically begin with a shift of focus and a loss of market focus.

2)  The personalizing of the situation leads to an emotional reaction.  Generally that reaction is one of frustration, fear, or overeagerness/overconfidence.  That emotional reaction represents the body’s fight or flight response to a perceived emergency and leads us to act rather than stay patient.  Once we personalize a situation, it’s no longer about the trade.

3)  The emotional reaction leads to reactive decision-making.  Out of frustration or fear, we take trades we shouldn’t, abandon good trades, etc.  Many times, when we review the situation after the market close, we wonder how we could have been so foolish.  The trading decision was not made for trading reasons; it was made to manage the crisis that we had talked ourselves into.     

Once we understand this three-step sequence, we can become more aware of our own patterns and disrupt them before they lead to poor decisions and actions.  For example, I know in my own trading that once I’m thinking about myself, my track record, my P/L on the day, I’m not in the zone.  At that point, the focus needs to shift from the market to my own processing of events.  By taking deep breaths, slowing myself down, placing the situation in perspective, and returning to the market with fresh eyes on opportunity, I prevent the initial problem from cascading.

Very often, we recognize our problem patterns by identifying signature negative thoughts and/or feelings:  ones that recur in market situations.  It’s almost as if a script is playing itself in our heads.  When we view the script as the problem, not the market, we not only open ourselves to patience; we also create a situation where we can use our patient time to reinforce new and constructive ways of processing market outcomes.

Published at Tue, 03 Jan 2017 10:43:00 +0000

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Oil prices rise as markets eye OPEC, non-OPEC production cuts

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Oil prices rise as markets eye OPEC, non-OPEC production cuts

By Jane Chung | SEOUL

Oil prices rose in the first trading hours of 2017, buoyed by hopes that a deal between OPEC and non-OPEC members to cut production, which kicked in on Sunday, will be effective in draining a global supply glut.

International Brent crude oil prices LCOc1 were up 16 cents, or 0.3 percent, at $56.98 a barrel at 0802 GMT on Tuesday – close to last year’s high of $57.89 per barrel, hit on Dec. 12. Oil markets were closed on Monday after the New Year’s holiday.

U.S. benchmark West Texas Intermediate (WTI) CLc1 crude oil prices were up 22 cents, or 0.41 percent, at $53.94 a barrel, not far from last year’s high of $54.51 reached on Dec. 12.

Jan. 1 marked the official start of the deal agreed by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC member countries such as Russia in November last year to reduce output by almost 1.8 million barrels per day.

Market watchers said January will serve as an indicator for whether the agreement will stick.

“Markets will be looking for anecdotal evidence for production cuts,” said Ric Spooner, chief market analyst at Sydney’s CMC Markets. “The most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages.”

Libya, one of two OPEC member countries exempt from cuts, increased its production to 685,000 barrels per day (bpd) as of Sunday, up from around 600,000 a day in December, according to an official from the National Oil Corporation (NOC).

Elsewhere, non-OPEC Middle Eastern oil producer Oman told customers last week that it will cut its crude term allocation volumes by 5 percent in March.

Non-OPEC member Russia’s oil production in December remained unchanged at 11.21 million bpd, still near a 30-year high, but it was preparing to cut output by 300,000 bpd in the first half of 2017 in its contribution to the production cut accord.

(Reporting by Jane Chung; Editing by Kenneth Maxwell, Richard Pullin and Christian Schmollinger).

Published at Tue, 03 Jan 2017 02:07:39 +0000

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Why Context Matters in Trading

 

Why Context Matters in Trading

Saarinen realized that the effectiveness of a design hinges not just on its individual attributes, but also on the context in which it appears.  We are drawn to many of Frank Lloyd Wright’s structures, such as Fallingwater, because they harmonize with their natural environments.  Similarly, we furnish quite differently a home in a modernist design and one that is an American colonial.


Context matters in terms of behavior as well.  How we behave at a funeral will be different than at a party.  How we speak with a child differs from our speech with a group of adults.  The same words can be interpreted differently depending upon the situation: texts derive meaning within contexts.

This is an important market lesson as well.  Some traders look for “setups”, patterns that give them a probabilistic edge in trading, across a variety of market conditions.  As Ivaylo Ivanov points out in his recent book, this is a major mistake.  The patterns that set up in a bull market will be different from those in range conditions.  What makes his text interesting is not just the 10 setup patterns that he illustrates, but the understanding of when each of those is relevant.

Suppose the market opens with a flurry of buying activity, followed by some selling.  We could look at that in isolation and use the pullback to join the upside.  If, however, we step back and see that the market is unable to surmount its previous day’s high even with the early buying, we would likely interpret the situation quite differently and perhaps take the opposite trade for a return into yesterday’s range.  

Similarly, a breakout from a range that occurs with elevated volume early in the trading day is often interpreted quite differently from a breakout during midday hours.  Early in the day, we have the most liquid market conditions and the greatest activity from large market participants.  Ideally, we want their activity at our back, not in our face.  For the day trader, time of day is an important element of context.

At a broader level, suppose we notice a wide array of risk assets moving higher, including U.S. stocks, overseas shares, oil, high yield bonds, and emerging market currencies.  The macro participant views such “risk-on” behavior as part of a single trade related to global growth and will view the situation quite differently from one in which one of those assets moves higher in isolation.  

Many poor trades result from becoming so narrowly focused on the price action of what we’re looking to trade that we fail to step back and appreciate the context in which the action is occurring.  That’s like jumping into a conversation wanting to speak what’s on your mind without taking into account what’s been going on in the conversation to that point.  When we place texts in context, we achieve understanding.  The best trades set up when a smaller picture lines up with a larger one.

Further Reading:  Training Yourself in Pattern Recognition

Published at Mon, 02 Jan 2017 11:52:00 +0000

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New Year Planning For Business Owners

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New Year Planning For Business Owners

By Glenn Curtis | Updated January 2, 2017 — 6:00 AM EST

Every new year, business owners should take the time to sit down and do a little planning, just to make sure that they’ll be able to keep their company afloat and on the right track. To check that the business will have the necessary tools to ensure it’s financial and operational goals will be met, and that the firm’s employees will be happy with their working environment. Read on for some tips to help make the planning process run smoothly for you and your business.

Vendors

It should go without saying that every business owner should periodically review vendors and suppliers to make certain that they are giving competitive prices and delivering quality service. The beginning of the year may be the best time of year to review vendors.

In many cases, suppliers may have just completed their budgets for the current fiscal year, and they are looking to pin down business and cut deals to ensure that they achieve their annual financial objectives.

With that in mind, owners should ask themselves the following questions:

  • Are current vendors charging competitive rates?
  • Are current vendors providing good service and adapting to the business’s changing needs?
  • Are there any new vendors or suppliers who deserve a chance or from whom the business might obtain a quote?
  • Does it make sense to try out a new vendor, even if it means giving him or her a small order?
  • Might trying out a new vendor provide the business with leverage over an existing vendor?

Again, business owners will need to answer these questions in order to know whether they are getting good deals. Getting the best deals enables the business to keep its costs low, which improves the bottom line. Again, the first few months of the year are an opportune time to do this.

Equipment

Manufacturing companies and many service-related businesses depend on machinery, supplies and a variety of other equipment (from vehicles to assembly devices) to operate. However, many business owners are so caught up in the day-to-day activities that go along with running the business that they sometimes forget to do periodic equipment checks and make sure that they have what they need to grow the enterprise.

The first quarter is a good time to evaluate a company’s equipment needs and to determine whether any capital investments need to be made. That’s because identifying the business’s equipment needs early on in the year can help the enterprise make its annual numbers. It can also help the business owner plan for future cash needs.

The following are questions that all business owners should ask themselves regarding equipment needs:

  • Does the business have the equipment necessary to succeed and profit over the long haul?
  • If not, can the equipment last another year, and can the business sustain itself using the existing equipment?
  • What will new equipment cost, and where can quotes for the equipment be obtained?
  • Does the company have the cash on hand or the ability to finance such purchases, or will the money need to come from future operational cash flow?
  • Are there any expenses that could be cut in order to offset and help justify such expenditures?

Employees

Staffing needs should also be considered. It’s good to recognize any deficiencies early on in the fiscal year so that appropriate adjustments can be made. Also, keep in mind that finding, hiring and training the “right person” can take a lot of time, so it’s a good idea good to get on the ball as early as possible.

Furthermore, it’s important to realize that many workers tend to ponder their own futures at the end of a year. They start thinking about whether they intend on sticking with the company or moving on.

Insurance

While the old adage says that the best defense is a good offense, sometimes the best offense is a good defense, and insurance coverage is a business necessity.

At the beginning of the year, new rates for health insurance, business liability insurance, automobile insurance, umbrella policies and other insurances tend to come into effect and it’s a great time to go quote shopping.

All business owners should ask themselves the following questions regarding insurance:

  • Is the company adequately covered in terms of liability and/or does it have adequate fire and health insurance?
  • Are insurance companies running multi-policy deals at the beginning of the year in order to garner your business?
  • Are there any new insurance carriers that might be able to provide a competitive quote?
  • Has the company taken on any new assets or business interests that haven’t been accounted for and protected by existing policies?

Retirement Plans

Businesses looking to set up 401(k), simplified employee pension (SEP) or other retirement plans should do so as early as possible during the year. Setting up a plan early on can permit employees to take full advantage of their annual allowed pretax contributions. Theoretically, the more time the money is growing on a tax-deferred basis, the larger the nest egg they may accumulate.

Reviewing the plans, selecting an investment firm, and actually setting up a plan doesn’t happen overnight. Again, getting an early jump on these efforts makes sense.

Questions business owners should ask when setting up retirement plans:

  • What will the cost be to administer the plan?
  • How many employees might benefit and want to take advantage of the plan?
  • How much will the company need to contribute to the plan?
  • Are there any advantages to setting up one type of plan over another based on costs, the firm’s size and employees’ retirement needs?

The Bottom Line

By definition, business owners should continually evaluate their businesses and make adjustments accordingly. However, from a number of perspectives – such as insurance, retirement planning, staffing, vendor and equipment needs – the New Year is a particularly opportune time to sit down and plan
Published at Mon, 02 Jan 2017 11:00:00 +0000

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