During the June press conference of the Federal Open Market Committee (FOMC), Federal Reserve Chair Janet Yellen downplayed the recent slowdown in inflation. She even went so far as to call attention to cell phone service pricing as a temporary factor affecting inflation expectations.  Fed watchers had started to doubt whether the central bank would further increase rates this year as inflationary pressures ebbed. Yellen’s statements sent rates on the 10-year Treasury plunging as most see little evidence that the Fed will be able to reach its inflation target of 2% this year. But what if… Read More

During the June press conference of the Federal Open Market Committee (FOMC), Federal Reserve Chair Janet Yellen downplayed the recent slowdown in inflation. She even went so far as to call attention to cell phone service pricing as a temporary factor affecting inflation expectations.  Fed watchers had started to doubt whether the central bank would further increase rates this year as inflationary pressures ebbed. Yellen’s statements sent rates on the 10-year Treasury plunging as most see little evidence that the Fed will be able to reach its inflation target of 2% this year. But what if Yellen is right? What if pricing pressures are heading higher? A return to inflation after years of subdued pressure would have far-reaching effects on the economy and different assets. Not only would increased inflation send bonds reeling, but it could also derail the eight-year bull market by slowing price growth via higher interest rates. With the unemployment rate nearing 4% and economic growth pulling people back into the labor force, the Fed is firmly in disagreement with the market on the outlook for inflation.  Only one of them can be right. So Who Is Right? The markets do not… Read More

Entropy, the second law of thermodynamics, says that all closed systems will tend to greater disorder. It’s also a quickening process. The greater the disorder becomes, the faster the system breaks down completely. In a nutshell, things just tend to fall apart.  That systemic law may be just as true outside the world of physics, as several forces look to be ushering us to an age of disorder. Eurasia Group, the political think tank, has warned that the world is entering a year of geopolitical recession in 2017.  Strategists at Goldman Sachs… Read More

Entropy, the second law of thermodynamics, says that all closed systems will tend to greater disorder. It’s also a quickening process. The greater the disorder becomes, the faster the system breaks down completely. In a nutshell, things just tend to fall apart.  That systemic law may be just as true outside the world of physics, as several forces look to be ushering us to an age of disorder. Eurasia Group, the political think tank, has warned that the world is entering a year of geopolitical recession in 2017.  Strategists at Goldman Sachs told CNBC last week that it may take either a war or recession to shock the stock market out of its low-volatility range. While the investment bank estimates only a 25% chance of recession over the next two years, the risk of a geopolitical conflict could be just around the corner. The world seems to be turning to a more uncertain and hostile future, one where geopolitical and economic events may cause a spike in stock volatility. Instead of buying general protection or shifting money to safety assets, there are investments that can thrive in the environment. Are We Heading… Read More

Biotech and pharmaceutical stocks have been in the political crosshairs for more than a year. The threat of government controls left the group attractively valued into 2017 but the potential for headline risks has kept most investors on the sidelines.  That is, until last week. Biotech shares jumped last week on rumors of the President’s executive order supporting industry-friendly measures that address drug prices. Prices were also boosted by the industry escaping targeted pricing measures in the Senate’s draft healthcare bill. With the headline risk of regulatory action against pricing all but off the table, shares of drug makers can… Read More

Biotech and pharmaceutical stocks have been in the political crosshairs for more than a year. The threat of government controls left the group attractively valued into 2017 but the potential for headline risks has kept most investors on the sidelines.  That is, until last week. Biotech shares jumped last week on rumors of the President’s executive order supporting industry-friendly measures that address drug prices. Prices were also boosted by the industry escaping targeted pricing measures in the Senate’s draft healthcare bill. With the headline risk of regulatory action against pricing all but off the table, shares of drug makers can finally get back to trading at fair values.  While investors have already started to come back to the group, the market still isn’t fully pricing in leadership or drug pipeline potential.  Biotech Steps Up To Lead The Market The Biotech industry got hammered last year, with several companies spotlighted for triple-digit price increases on drugs and non-stop rhetoric against the industry from both sides of the race for president.  #-ad_banner-#Shares of the SPDR S&P Biotech ETF (NYSE: XBI) plunged 25%, even with the late-year rally after the November election. Investors have been cautiously optimistic this year, noting low valuations… Read More

Even if you believe economic growth and corporate earnings will pick up, it’s difficult to make the case that shares of U.S. companies are fairly-valued. Companies in the S&P 500 are expected to book earnings growth of 9.9% through 2017 according to analysts surveyed by FactSet Research.  That brings the index’s valuation to 17.7 times forward earnings, a premium of 26% on the S&P’s average of 14.0 over the last decade. Against this pricey environment, evidence has started to build that could disrupt the market.  We’ve already seen the eight-year bull market waver, with the S&P… Read More

Even if you believe economic growth and corporate earnings will pick up, it’s difficult to make the case that shares of U.S. companies are fairly-valued. Companies in the S&P 500 are expected to book earnings growth of 9.9% through 2017 according to analysts surveyed by FactSet Research.  That brings the index’s valuation to 17.7 times forward earnings, a premium of 26% on the S&P’s average of 14.0 over the last decade. Against this pricey environment, evidence has started to build that could disrupt the market.  We’ve already seen the eight-year bull market waver, with the S&P 500 struggling to move higher through March and April. A few tech stocks managed to drag the market higher in May but investors seem to be getting skittish. When the music stops on the second-longest bull market in history, the only investors left with chairs may be the ones that looked for growth outside U.S. markets. How Long Can The U.S. Bull Market Last? Just last week we got disappointing retail sales growth, and job growth has slowed this year compared to last. The Federal Reserve held to its outlook last week, withdrawing monetary support by raising rates and… Read More

I’ve made a career in spotting trillion-dollar themes in the market, first as an equity analyst and more recently as a pre-IPO investor. Any analyst can create a cash flow model — it’s as simple as working through a company’s financial statements to scrutinize the true cash-generating power of the investment. Every broker, research firm and fund manager has a team of analysts with their noses buried in 10-Ks and other documents. But being ahead of the herd requires finding those market forces that will influence the direction of whole sectors, or even the entire market. It’s finding themes with… Read More

I’ve made a career in spotting trillion-dollar themes in the market, first as an equity analyst and more recently as a pre-IPO investor. Any analyst can create a cash flow model — it’s as simple as working through a company’s financial statements to scrutinize the true cash-generating power of the investment. Every broker, research firm and fund manager has a team of analysts with their noses buried in 10-Ks and other documents. But being ahead of the herd requires finding those market forces that will influence the direction of whole sectors, or even the entire market. It’s finding themes with the force of trillions behind them that create triple-digit return strategies. I’ve used what is likely the most pervasive theme driving today’s markets to find stocks with huge support. I then looked for upside price catalysts on these stocks to identify three names that could be the biggest outperformers of the year. Are ETFs Taking Over The Market? Hedge Fund investors and Mutual Fund clients are dropping expensive portfolio managers in favor of passively-managed exchange-traded funds (or ETFs). Global ETF inflows reached a record of $375 billion in 2016, an increase of 7.8% over the previous year. U.S.-listed ETF… Read More

For anyone with more than a decade in the markets, the “value premium” is almost a sacred rule. The idea that stocks with lower valuation premiums would beat their more expensive “growth” peers is almost a given. Nobel laureates Eugene Fama and Kenneth French first identified the value premium in 1992, comparing returns on high book-to-market value stocks against low book-to-market stocks. It’s one of the three factors in their asset pricing model built to explain excess returns in a portfolio. Since the financial crisis, the outperformance of value stocks has been called into question, with… Read More

For anyone with more than a decade in the markets, the “value premium” is almost a sacred rule. The idea that stocks with lower valuation premiums would beat their more expensive “growth” peers is almost a given. Nobel laureates Eugene Fama and Kenneth French first identified the value premium in 1992, comparing returns on high book-to-market value stocks against low book-to-market stocks. It’s one of the three factors in their asset pricing model built to explain excess returns in a portfolio. Since the financial crisis, the outperformance of value stocks has been called into question, with growth stocks easily besting their value peers. The shift has turned the traditional investing theme on its head, and even one guru of value investing has questioned the future of cheap stocks. But economic realities are catching up to growth investing and value stocks may be ready to retake their dominance.  Two economic scenarios await investors over the next several years — and neither is good for growth stocks. When one of these futures begins to take shape, value names may prove to be the only path to profits. The Death Of Value Investing Has Been Greatly Exaggerated The… Read More

What started as a minor theme just decades ago looks to be turning the corner with the force of more than 75 million investors in the United States alone.  Investors have long supported the idea of a greater good through philanthropic projects. But it wasn’t until late in the 20th century that they started accepting dual-missions of profitability and social responsibility at companies in which they invested. The idea has fought a tough argument against the traditional singular mandate of increasing wealth. Now it seems the theme is becoming a major force, and new evidence points to surprising upside for… Read More

What started as a minor theme just decades ago looks to be turning the corner with the force of more than 75 million investors in the United States alone.  Investors have long supported the idea of a greater good through philanthropic projects. But it wasn’t until late in the 20th century that they started accepting dual-missions of profitability and social responsibility at companies in which they invested. The idea has fought a tough argument against the traditional singular mandate of increasing wealth. Now it seems the theme is becoming a major force, and new evidence points to surprising upside for investors. As the market shifts to rewarding socially-responsible companies, investors need to know what to look for and how to take advantage of the new paradigm. A Generation Of Impact Investors Impact investing is led by not only financial criteria but also influenced by environmental, social and governance standards (ESG). Adopting an ESG framework means management is explicitly embracing social issues and responsibilities beyond shareholder profits.  #-ad_banner-#Several endowments and pension funds have adopted ESG rules for companies in which they will invest but the theme has yet to be adopted by many individual investors. University endowments, pension funds, and… Read More

On Wednesday, May 17, the Dow and S&P 500 took a nose dive, recording their worst day since last September as the political side-show in Washington D.C. threatened the market’s eight-year bull run. While stocks have recovered from the selloff, all eyes are still on Washington for risks to the market. But political risk isn’t the biggest hurdle to stock gains. The biggest risk, one that has been building for more than a year, is now spreading and could be about to put the brakes on consumer spending and the entire economy. Real evidence is mounting that a consumer credit… Read More

On Wednesday, May 17, the Dow and S&P 500 took a nose dive, recording their worst day since last September as the political side-show in Washington D.C. threatened the market’s eight-year bull run. While stocks have recovered from the selloff, all eyes are still on Washington for risks to the market. But political risk isn’t the biggest hurdle to stock gains. The biggest risk, one that has been building for more than a year, is now spreading and could be about to put the brakes on consumer spending and the entire economy. Real evidence is mounting that a consumer credit crisis is brewing in America. It’s an eerie reminder of the mortgage crisis and could turn out to be just as spectacular when it all comes crashing down. The Crisis In Auto Loans Is Spilling Into Consumer Loans The crisis has been building in auto loans for over a year, as rock-bottom interest rates sent sales of cars to consecutive annual records. When car prices started to increase, lenders relaxed standards and nearly doubled the amount of time people could pay on the loan. The total amount of auto loans outstanding has jumped 50% since 2010. But cracks started… Read More

I love dividend stocks, but income investors face an inherent disadvantage against growth investors, one that costs them tens of thousands over decades of investing. The disadvantage comes from the regular taxation of your dividend earnings. Each year, Uncle Sam takes his cut of your hard-earned dividend payments. Since part of the returns of dividend stocks is lost each year, you lose the power of compounding seen in investments that aren’t taxed until sold. An investor in a dividend stock paying a 7% yield annually would see a $10,000 investment grow to $51,276 over 30 years, assuming reinvested dividends and… Read More

I love dividend stocks, but income investors face an inherent disadvantage against growth investors, one that costs them tens of thousands over decades of investing. The disadvantage comes from the regular taxation of your dividend earnings. Each year, Uncle Sam takes his cut of your hard-earned dividend payments. Since part of the returns of dividend stocks is lost each year, you lose the power of compounding seen in investments that aren’t taxed until sold. An investor in a dividend stock paying a 7% yield annually would see a $10,000 investment grow to $51,276 over 30 years, assuming reinvested dividends and a 20% rate on qualified dividends.  An investor putting $10,000 in a stock with a 7% price return but no dividend would see the investment grow to $60,898 over the same period (after adjusting for the one-time capital gains tax). The dividend investor has lost nearly $10,000 to the annual tax burden. There’s one way to save this money and get the most out of your dividend investments — by holding high-yield stocks in a tax-advantaged retirement account like an IRA.  Sharing Your Dividend Income With Uncle Sam Qualified dividend payments, paid when the investment is held for at… Read More

The hacker group known as Shadow Brokers publicly released a set of tools on the social network platform Medium in April. Called EternalBlue and EternalRomance, the tools allow hackers backdoor access for remote control of infected computers.  While the market hasn’t reacted to the news of the release, Sean Dillon of cybersecurity firm RiskSense Inc. told Bloomberg that these tools are “10-times worse” than recent viruses like the Heartbleed bug that infected computers at Yahoo and Amazon.  We’re talking about government-quality hacking tools — and they’ve just been spammed out to every hacker with an internet connection.  Dillon says the… Read More

The hacker group known as Shadow Brokers publicly released a set of tools on the social network platform Medium in April. Called EternalBlue and EternalRomance, the tools allow hackers backdoor access for remote control of infected computers.  While the market hasn’t reacted to the news of the release, Sean Dillon of cybersecurity firm RiskSense Inc. told Bloomberg that these tools are “10-times worse” than recent viruses like the Heartbleed bug that infected computers at Yahoo and Amazon.  We’re talking about government-quality hacking tools — and they’ve just been spammed out to every hacker with an internet connection.  Dillon says the tools are, “the kind of thing [security analysts] see used very rarely on very special, covert cybermissions.” He’s already found computers infected in dozens of clients from startups, government agencies and Fortune 100 companies. That means it’s only a matter of time before reports of large-scale and sophisticated cyberattacks start flooding the news. When it happens, expect a pop in the shares of cybersecurity companies. Cybercrime Headline Risks Move To Red Alert Corporate America prepared for years against the potential for hacker threats related to the Y2K bug. Headlines screamed warnings in 2014 for dangers related to the Heartbleed… Read More