April 22, 2015 – “Bubble Watch”

Wednesday, April 22, 2015

“Bubble Radar & Bubble Watch“

Bubbles, Bubbles, Everywhere!  Click here for Shiny Bubbles on Youtube!  Click here for Giant Bubbles Popping video footage on Youtube.com!  Click here to listen and watch Don Ho sing Tiny Bubbles on Youtube!  Click here for one last Bubble Artist video on Youtube!  Click here for Daniel Gross’s book “Pop! Why Bubbles Are Great for the Economy,” on Amazon.com.

Bubbles, bubbles, bubbles;  I’ve identified what I believe are a lot of bubbles that are lurking around in the securities markets worldwide.  I have identified them below, my cool thirteen list of bubbles.  There’s not exact science to bubble identification, it’s just from personal knowledge and experience;  High risk turns into bubbles over time, as fundamentals are “thrown out the window” in search of extreme high returns time and time again throughout history.  Some call it the greater fool theory, or hot potato.  There is no way to actually know when the bubbles will pop, but these are securities I believe have very high risk.  Those who successfully short a security as it declines could possibly make a fortune; which is very difficult.  It’s easier to point out a bubble, then it is to say, “okay it’s over, and prices will now collapse,” while being correct.  Bubbles can inflate and inflate and inflate for a long time, before actually bursting.  So as we head into rate increases and into any looming potential recession in the future, these bubbles I’ve identified I believe, will burst, and may depreciate rapidly.  These bubbles may depreciate significantly more rapidly versus the broad based indices, as the economy contracts, during the next recession.  I’m not forecasting a recession anytime soon, but it could show its face by mid to late 2017, or maybe later?  A stock market sell off could come well before any actual recession has materialized.  Beware of the bubbles and bear markets!  See my list of high risk tickers of BUBBLE stocks and ETFs, and also general description of bubbles, listed below, in no particular order.

When stocks collapse going into a recession, people get scared, they lose real money, some have their life savings wrecked.  Money flows out of speculation and high risk securities sending their prices downwards. Usually, that money flows into “safe havens” such as Treasuries, however, today’s yields in the Treasury market are not really appealing.  Some may or will write off stocks as electronic trash as stock prices completely implode.  Avoid all that.

Invest in a 60/40, 50/50, or 40/60 portfolio of fixed income and stocks (unless you can handle the possibility of e.g. a 30% possible decline in securities markets, lasting 18 to 24 months; before stock prices begin to rebound).  The economy has boom times and bust times, it expands and contracts.  When you invest in stocks, try broad based indices, such as the S&P500, the S&PMidCap400 (my personal favorite), and the Dow Jones Industrial Average; they are matched by the ETF tickers SPY, MDY, and DIA respectively.  Try investing, over the long run, in high yield fixed income, such as tickers JNK and HYG; and sovereign high yield such as EMB and PCY.  High yield should work well for investors with a greater than 18 month perspective on holding periods.  I view sell offs in EMB and PCY as major buying opportunities.  With every tragedy comes opportunity.  Sometimes, I like to say that people who invest in Treasuries are ripping themselves off!  The yields currently, even in the USA from our central bank, are nearly a total fraud to me. Even Agency fixed income has significantly better (or higher) yields versus Treasuries. Government yields among first world nations are at rip off yields worldwide.  In Europe they’re negative yields!  Negative yields are nuts!

Behold My List of Bubbles:

1. FXI & ASHR & ASHS & HAO & PEK
2. EFA & IEV
3. EWG (Germany may regret handing hundreds of billions of Euros to Greece, it likely is a total loss)
4. GREK [Beware of a total default in Greece!] (and PGAL, EWI, EIRL, EWP… “the PIIGS”)
5. ILF
6. EWZ
7. EWJ (Due to the quadruple whammy of Earthquake, Tsunami, and Nuclear Power Plant disaster; Plus the major demographic problems looming for Japan.  The Nikkei 225 was at nearly 38,957 in 1989!!!  It’s down literally nearly 50% over the past 25 and a half years!  Pathetic!)
8. EPI
9. The Euro currency itself, see ETF ticker FXE (it should come down)
10. Sometimes I think Tech is frothy, so QQQ may be due for a correction, and BioTech is due for a nasty spill, see ETF ticker IBB (some BioTech components such as PCYC, and REGN and MYL are nearly total HYPE galore to me!)
11. GLD (gold is and always was a bubble; So is silver, ETF ticker SLV)
12. XLV (how many years in a row can the healthcare sector increase in share price by more than 25%?!)
13. The entire bond market in Europe! Seriously?! Negative rates?! (see what Bill Gross describes as “the short opportunity of a lifetime!”)

“Real investors” have a buy and hold mentality lasting more than 12 to 24 months, which is why I like the broad based indices and their ETFs over the long run (DIA, SPY, and MDY).  I also like leverage on these ETFs, and the options and derivatives markets on these U.S. broad based indices.  I would be a long term bull on these indices using leverage and/or their index options; This can bring about uncommon and totally awesome results.  I’d use 5 to 15 percent allocations to deep in the money calls on the 1256 contracts on the indices, and perhaps also consider using margin on the remainder, going long e.g. MDY, SPY, and DIA, being approximately 110% invested.  Be sure to negotiate your margin interest rates with your broker, they’ll likely reduce your rate, if you just ask (or Google the lowest margin interest rate brokerages; Interactive Brokers is notorious for being very highly rated by Barron’s Magazine, while also having the lowest margin interest rates in the world).

Generally speaking, I also like the tobacco sector for slow and consistent earnings growth, and for their strong dividend yields and historical dividend growth (see tickers PM, MO, LO, RAI, BTI, etc);  Also I like REITs, specifically Hospital REITs and Prison REITs and Government REITs, see tickers HCN, HCP, NHI, OHI, SBRA, CXW, GEO, and I also like Financials (see tickers XLF, and banks, brokerages, and insurance company stocks with PE multiples less than the S&P500, say 8 to 13 PE Multiples, and with strong dividend yields greater than 2 to 3 percent or more).  In more modern recent history, the energy sector has been trashed, over the past 12 to 18 months, and there are strong yields now in the sector, see BP, BPT, RIG, and COP, etc.  The current yields on these securities might really blow your mind!

Beware that some investors claim that “everything’s a bubble now” thanks to central banks worldwide who have reduced interest rates to zero, “ZIRP” (zero interest rate policy) for a very long time now, over the past five to seven years or more.  It was foolish in my view, but what could they do as the world fell apart during what I describe as “the greater depression” of late 2007 through early 2009?  We’ll see I guess going forward, if “everything’s a bubble.”

Happy trading!

Andrew G. Bernhardt

[See my page of great and useful links]

PS-  Just one more Bubble Show, by Melody Yang’s “Gazillion Bubble Show”, press here for the Youtube presentation.

April 17, 2015 – “Stock Market Checkup”

April 17, 2015

Stock Market Checkup

Today the markets are freeking out, (see this Youtube video) so it’s time for a checkup…

Here’s the figures Year to date (YTD) as of today at 12:15pmCT…

DJIA +0.19% YTD (matched by ETF ticker DIA)

S&P500 +1.19% YTD (matched by ETF ticker SPY)

S&PMidCap400 +4.39% YTD (matched by ETF ticker MDY)

Russell 2000 +4.00% YTD (matched by ETF ticker IWM)

Nasdaq Composite +4.22% YTD (matched by ETF ticker ONEQ – beware of low volume and low assets under mgmt. with this ETF)

Nasdaq 100 +2.84% YTD (matched by ETF ticker QQQ)

My “crystal ball” tells me that this means the DJIA is the best choice, since it’s lagging.  Also, I like the DJIA because it has the lowest PE Multiple of all the averages at 16.03, and the DJIA has a 2.28% dividend yield.  Other market indices in the US have PE Multiples of 20 to 22, and lower dividend yields.

Here’s the performance through Friday, April 17, 2015, at roughly 12:15pmCT

PE Multiples & Index Yields on Friday, April 17, 2015

Andrew G. Bernhardt

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Sunday, April 12, 2015 – “On the Japanese Stock Market & Economy”

Sunday, April 12, 2015

“On the Japanese Stock Market & Economy”

You may have heard that the Japanese stock market is doing great… Don’t believe it. The Nikkei 225 closed Friday at 19,907.63.  Journalists are claiming this is really great, get in they say, don’t miss out, etc.

GOOD ONE!

Nikkei 225 on Friday, April 10, 2015

Nikkei 225 on December 29, 1989

As you can see, there’s really nothing to celebrate or to get excited about.  The Nikkei 225 on 12-29-1989 was at 38,916, and about 25 years later it’s literally down roughly 50%.  To me that’s totally pathetic.  It’s worse than the lost decade, or the lost quarter century, it’s the lost generation at this point, with zombie banks.  Maybe it’s the lost empire?

The reason the Nikkei 225 is down 50% over 25 years is also a good one.  The Japanese in the 80’s were believed to be so successful that they’d buy the whole world up, and their real estate market was booming!  Then they were plagued with a real estate bubble, recession, and a stock market collapse.  They’ve apparently never recovered.

What would one expect after a totally delusional, market mania, of excessive euphoria, elation, and elevated prices surrounding real estate and high double digit appreciation annually lasting for decades?!

How, seriously, can anyone take any real estate market that appreciates this rapidly, anywhere on earth?  Bubbles go pop!

Additional risks as of late, include their looming demographics issues, involving a generation or two obsessed with birth control pills.  Consequently, the birth rate and the fertility rates have fallen off a cliff.  This is not going to bode well for their economy and their generous entitlement programs.  There are similar problems looming in the USA and in Europe, but not at the scale of the Japanese.  Additionally, the Japanese have been plagued and foiled by a nuclear power plant disaster, tsunami, and earthquake in recent years.

I’m not sure how or why the Japanese government and its people have managed to suffer from deflation nearly every year since their real estate and stock market bubble of the late ’80s.  Did their Central Bank forget that it could print money, and expand the monetary base, and jack up the inflation rate, if it wanted?  Deflation is obviously crippling to any economy, and so I can’t believe they sat around and let that cripple their economy over the past nearly 25 years!  If they had more aggressively printed money, they could have created and constructed low to moderate annual inflation rates, which would have been a much better environment to deal with.

For all these reasons, I would not invest in the Nikkei 225 (see etf EWJ).

Andrew G. Bernhardt

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