In recent years, investors increasingly use exchange-traded funds (ETFs) on the short end of their portfolio. Shorting these funds provides an easy way to hedge a portfolio managers’ position in individual stocks. Yet some ETFs with high short interest are simply the target of speculators that are anticipating a big decline for an industry or asset class. When this happens, the short interest can grow to alarming levels. For individual investors that are able to wait out near-term bears and focus on the long-term, it can mean a strong upside when sentiment turns. The Market Loves To Hate Oil… Read More

In recent years, investors increasingly use exchange-traded funds (ETFs) on the short end of their portfolio. Shorting these funds provides an easy way to hedge a portfolio managers’ position in individual stocks. Yet some ETFs with high short interest are simply the target of speculators that are anticipating a big decline for an industry or asset class. When this happens, the short interest can grow to alarming levels. For individual investors that are able to wait out near-term bears and focus on the long-term, it can mean a strong upside when sentiment turns. The Market Loves To Hate Oil As you’d expect, energy-related ETFs are an especially popular target for short sellers these days. In fact, almost every share held in long accounts for the SPDR S&P Oil & Gas Explorers ETF (NYSE: XOP) is also currently borrowed for short seller accounts.   The latest headache for oil prices and oil stocks: fears are growing that U.S. oil storage tanks could reach capacity in April. While Petroleum Administration for Defense District (PADD 1) storage is near capacity at around 85%, total storage is only at 60% capacity. The PADD regions were created during WWII to… Read More

Are wage increase announcements bad news for share prices? That’s the easy conclusion to draw after seeing the recent pullback in shares of Wal-Mart Stores, Inc. (NYSE: WMT) following an announcement that the retailer would raise wages for hundreds of thousands of its employees. The starting wage for associates will increase to $9 per hour in April and further to $10 an hour by February of next year. Department managers will also see their starting wages increase to $13 an hour this summer and to $15 an hour next year. #-ad_banner-#The raise will affect as many as 500,000 associates and… Read More

Are wage increase announcements bad news for share prices? That’s the easy conclusion to draw after seeing the recent pullback in shares of Wal-Mart Stores, Inc. (NYSE: WMT) following an announcement that the retailer would raise wages for hundreds of thousands of its employees. The starting wage for associates will increase to $9 per hour in April and further to $10 an hour by February of next year. Department managers will also see their starting wages increase to $13 an hour this summer and to $15 an hour next year. #-ad_banner-#The raise will affect as many as 500,000 associates and could cost the company upward of $1 billion in additional annual wage expenses. Shares have now slid more than 3% since the late February announcement. Investors saw this coming. Back in November, Greg Foran, CEO of Wal-Mart’s U.S. operations, warned the company would see pressures to the bottom-line as it balances wage leverage with higher customer service standards. Though investors see the wage hikes as bad news, the opposite is true. Higher wages should strengthen the company’s competitive position and even boost bottom-line earnings. Much Ado About Nothing First, understand that the impact of the wage increase is likely overstated. Read More

Six years after the collapse of global financial markets, it seems most countries missed their invitation to the economic growth party. Massive monetary stimulus was supposed to jumpstart economies, but it seems the United States is dancing by itself.  China is still growing impressively, but mostly by state-led investment spending, and growth is slowing every year. Japan has yet to really benefit from its own monetary stimulus, as Prime Minister Shinzo Abe’s arrows seem to have missed their mark.  Europe is really the place to watch. Acting the old codger, Europe completely shunned the monetary stimulus party in… Read More

Six years after the collapse of global financial markets, it seems most countries missed their invitation to the economic growth party. Massive monetary stimulus was supposed to jumpstart economies, but it seems the United States is dancing by itself.  China is still growing impressively, but mostly by state-led investment spending, and growth is slowing every year. Japan has yet to really benefit from its own monetary stimulus, as Prime Minister Shinzo Abe’s arrows seem to have missed their mark.  Europe is really the place to watch. Acting the old codger, Europe completely shunned the monetary stimulus party in favor of restrictive fiscal cuts. The European Central Bank (ECB) only recently, and grudgingly, accepted the invitation. But there are signs that its stimulus program may be the economic story of 2015. #-ad_banner-#Taken together, the euro zone is the largest economic region on the planet at $18.45 trillion. If the region meets its expected 1.5% growth rate for 2015 it would be the fastest growth since 2010. This should help boost investor confidence as the region finally digs itself out of five years of economic stagnation. The central bank just started its 19-month program to pump… Read More

The six year-old bull market is widely attributed to both stimulative policies from the Federal Reserve and a rebounding U.S. economy. Yet the Fed, the most powerful central bank in the world, may soon be taking the punch bowl away from the party.   #-ad_banner-#Does the Fed’s presumed move to begin lifting interest rates this summer mean it’s time to book profits and take a more defensive posture?  Then again, can you afford to do that when fixed-income investments earn just one or two percentage points above inflation? It’s a tough choice that many investors are pondering.  … Read More

The six year-old bull market is widely attributed to both stimulative policies from the Federal Reserve and a rebounding U.S. economy. Yet the Fed, the most powerful central bank in the world, may soon be taking the punch bowl away from the party.   #-ad_banner-#Does the Fed’s presumed move to begin lifting interest rates this summer mean it’s time to book profits and take a more defensive posture?  Then again, can you afford to do that when fixed-income investments earn just one or two percentage points above inflation? It’s a tough choice that many investors are pondering.   Bubble Or Rich Valuation  —  Bad For Investors Either Way One warning sign for risk-averse investors: The tech-heavy Nasdaq is now valued at 32 times trailing earnings, a premium of 68% to the stocks in the S&P 500.   Bond King Bill Gross recently joined the growing list questioning valuations saying that the index was in “a bit of a bubble,” and negative real interest rates have caused people to mindlessly pile into equities.   While the Nasdaq is nowhere near its 175 times earnings valuation it reached in 2000, a price-to-earnings of 32… Read More

Between the plunge in oil prices and economic sanctions, the Russian economy is taking a one-two punch. Even as stocks markets in the United States, Europe and Japan are hitting new highs, the Market Vectors Russia ETF (NYSE: RSX) has plummeted 19% over the last year.   #-ad_banner-#Such periods of distress can also spell opportunity. Recall the investing maxim: be fearful when others are greedy and greedy when others are fearful. That’s the tack being pursued by Exxon Mobil Corp. (NYSE: XOM), which has taken note of a huge opportunity in lower asset… Read More

Between the plunge in oil prices and economic sanctions, the Russian economy is taking a one-two punch. Even as stocks markets in the United States, Europe and Japan are hitting new highs, the Market Vectors Russia ETF (NYSE: RSX) has plummeted 19% over the last year.   #-ad_banner-#Such periods of distress can also spell opportunity. Recall the investing maxim: be fearful when others are greedy and greedy when others are fearful. That’s the tack being pursued by Exxon Mobil Corp. (NYSE: XOM), which has taken note of a huge opportunity in lower asset prices, a weak ruble and one of the biggest energy finds on the planet.   Putting The Shale Revolution To Shame In the United States, the revolution in shale exploration and drilling has been the big story in energy for the last several years. However, surging production growth has led to oversupply and falling crude prices.     Even as oil prices plummet, long-term energy demand remains intact. In its 2035 energy outlook, BP forecasts 0.8% annualized demand growth of liquids, to 4.97 trillion tons of oil equivalent. Compare that to production growth of  0.7% annually to… Read More

All the talk lately is about the much belated return to 5,000 on the Nasdaq, a level not achieved since just prior to the bursting of the Internet bubble in 2000. The tech-heavy index has risen about 15% over the past year and has jumped more than 100% over the past five.  Now shares of the companies in the index trade for 31 times trailing earnings, a premium of 67% to the valuation of the stocks in the S&P 500. You can’t help but wonder if the Nasdaq is in for another tumble. To be fair, things are… Read More

All the talk lately is about the much belated return to 5,000 on the Nasdaq, a level not achieved since just prior to the bursting of the Internet bubble in 2000. The tech-heavy index has risen about 15% over the past year and has jumped more than 100% over the past five.  Now shares of the companies in the index trade for 31 times trailing earnings, a premium of 67% to the valuation of the stocks in the S&P 500. You can’t help but wonder if the Nasdaq is in for another tumble. To be fair, things are not the same as they were in 2000. Back then, the index reached a valuation of 175 times trailing earnings and startup tech companies dominated the price action. Today, tech companies make up just 55% of the largest 100 companies in the index, followed by consumer stocks (27%) and health care (14%). But just because it’s not an obvious bubble does not mean we can sound the all clear. #-ad_banner-# The Bubble Chorus Grows Some notable investors have joined a… Read More

Rock bottom interest rates have driven income-seeking investors away from bonds and toward dividend paying stocks.   #-ad_banner-#Trouble is, the shift has pushed stock prices much higher and their valuations are getting rich. Shares of the SPDRS S&P Dividend ETF (NYSE: SDY) increased more than 12% over the last year and trade for 20.7 times trailing earnings.   As an income investor, I fear that rising rates will dim the appeal of dividend-paying stocks. As investors start to again look to bond yields for safety, the appeal of that quarterly paycheck may not be enough to support valuations. Read More

Rock bottom interest rates have driven income-seeking investors away from bonds and toward dividend paying stocks.   #-ad_banner-#Trouble is, the shift has pushed stock prices much higher and their valuations are getting rich. Shares of the SPDRS S&P Dividend ETF (NYSE: SDY) increased more than 12% over the last year and trade for 20.7 times trailing earnings.   As an income investor, I fear that rising rates will dim the appeal of dividend-paying stocks. As investors start to again look to bond yields for safety, the appeal of that quarterly paycheck may not be enough to support valuations.   Fortunately, there is another side of the cash yield equation.   Nearly three-quarters of the companies in the S&P 500 repurchased their own shares in the third quarter of 2014. On a trailing twelve month basis ended September 2014, $567 billion in stocks was bought back. That represented an increase of 27% over the same period in 2013, bringing the buyback yield over 3% and nearly a full percent above the dividend yield.   Companies that repurchased shares over the 10 years to 2014 outperformed both the S&P 500 and companies that did not make repurchases, according to Factset… Read More

  On Monday, March 9, investors will celebrate the sixth anniversary of the current bull market. After a brief pullback in January, the S&P 500 and Dow Jones Industrial Average have resumed their upward move and are now far above previous peaks.   #-ad_banner-#Even the tech-heavy Nasdaq is almost back at levels seen during the dot-com bubble of 2000.     Yet while many portfolios have staged an impressive rebound, consumers’ balance sheets have not. By one measure, more than a third of the population is at high risk of a personal financial crisis.   Nearly a quarter (24%) of… Read More

  On Monday, March 9, investors will celebrate the sixth anniversary of the current bull market. After a brief pullback in January, the S&P 500 and Dow Jones Industrial Average have resumed their upward move and are now far above previous peaks.   #-ad_banner-#Even the tech-heavy Nasdaq is almost back at levels seen during the dot-com bubble of 2000.     Yet while many portfolios have staged an impressive rebound, consumers’ balance sheets have not. By one measure, more than a third of the population is at high risk of a personal financial crisis.   Nearly a quarter (24%) of Americans have more credit card debt than emergency savings, according to a recent report by Bankrate, a financial publisher. Another 13% have no credit card debt, but also don’t have any emergency savings either. That is 37% of the population that would be thrown into severe financial stress were they to lose their employment or another recession were to occur.   Those approaching retirement may be even worse off. As I wrote in December, many investors may be unable to live on the traditional 4% withdrawal rule.   While the U.S. economy has been the success story… Read More

  After nine months of fruitless negotiations, the International Longshore and Warehouse Union and the Pacific Maritime Association agreed to a tentative agreement to re-open 29 West Coast ports.   The deal, which came three days after the arrival of Labor Secretary Thomas Perez, must still be ratified by both sides. It will be a huge relief for importers, with nearly half of all U.S. maritime trade and 70% of Asian imports offloading at the ports.   Economists may also be breathing a sigh of relief. A prior 10-day shutdown in 2002 cost the economy $1 billion per day, or… Read More

  After nine months of fruitless negotiations, the International Longshore and Warehouse Union and the Pacific Maritime Association agreed to a tentative agreement to re-open 29 West Coast ports.   The deal, which came three days after the arrival of Labor Secretary Thomas Perez, must still be ratified by both sides. It will be a huge relief for importers, with nearly half of all U.S. maritime trade and 70% of Asian imports offloading at the ports.   Economists may also be breathing a sigh of relief. A prior 10-day shutdown in 2002 cost the economy $1 billion per day, or nearly 4% of the nation’s output over the period.   Yet it’s too soon to celebrate the news: Clearing out the backlog of shipments will take several months, which likely portends weak results for many firms in the first and second quarters.     Not Soon Enough Even when the ports have been cleared of delayed freight and operations return to normal, serious problems will remain. The increase in super-sized freighters has overwhelmed dock workers and bottlenecks for rail and truck transportation are becoming a persistent theme.   That issue played a direct role in the contract… Read More

  The global economy can deliver a jolt to stock markets at any moment. These “Black Swan” events are hard to predict or anticipate, but are always on the back of our minds.     #-ad_banner-#Sometimes, we can even develop a vague sense that something is brewing. For example, investors could sense that market trouble was coming in 2000 and 2008, but the likelihood of trouble was so far outside of market sentiment that few were prepared.   With central banks and investors around the world completely preoccupied with deflation, could rising price pressures be the next unexpected event for… Read More

  The global economy can deliver a jolt to stock markets at any moment. These “Black Swan” events are hard to predict or anticipate, but are always on the back of our minds.     #-ad_banner-#Sometimes, we can even develop a vague sense that something is brewing. For example, investors could sense that market trouble was coming in 2000 and 2008, but the likelihood of trouble was so far outside of market sentiment that few were prepared.   With central banks and investors around the world completely preoccupied with deflation, could rising price pressures be the next unexpected event for which you should be preparing?   The clues are all there and we may be in for a trend of low growth, high unemployment and increasing prices. That combination, last seen several decades ago, is referred to as “stagflation.”   Disco Fever And The Great Stagflation The last time stagflation reared its ugly head, bell bottoms were all the rage and Richard Nixon was just starting his second term in the White House. Economic growth — adjusted for inflation — was an anemic 3% for the rest of that decade. Indeed ample price pressures meant that  the… Read More