This 200% Gain Won’t Be The Last…

By Alan Knuckman

This post This 200% Gain Won’t Be The Last… appeared first on Daily Reckoning.

“I felt as if I were riding a pendulum. Just as I would swing into the abyss of hopelessness, the pendulum would swing back with some small goodness.”

That’s from Between Shades of Gray, written by bestselling author Ruta Sepetys. It’s the story of a teenage Lithuanian girl who was abducted and forced to work in a Soviet-Siberian labor camp.

The book is about suffering, pain, hope and fortitude… feelings a lot of investors can relate to. But there’s an important investment lesson hiding in the pendulum quote I shared.

As you probably know, a lot goes into a stock price. Some of it is math — earnings, assets, expenses and more. But stock prices are also a product of emotions, psychology and opinions on the underlying company…

In fact, there are plenty of times when feelings have more influence on a stock than the pure mathematics.

For instance, when a stock’s price keeps going up and up and up, even though the company is losing more and more money every year.

Or when a company has a strong balance sheet and great earnings, but investors are dumping shares left and right.

In situations like these, you can bet that investors are valuing emotions over facts. They’re putting money into companies they like and taking their money out of companies they hate.

But these illogical situations don’t last forever. The next piece of bad news from a beloved company could be the last straw for investors — causing its stock price to suddenly reverse.

Likewise, a good earnings report could be all it takes for investors to realize they’ve gotten a company all wrong… and they’ll start buying back in.

If you can get into one of these stocks before a dramatic turnaround, you have an opportunity to profit immensely.

I call them “pendulum profits.”

Twitter Inc. (TWTR) is a perfect example.

When Twitter debuted on the New York Stock Exchange in the fall of 2013, investors rushed to buy — thinking it was going to be the next great tech titan…

But after shares peaked at $70 in early 2014, they started to sell off.

Investors were worried about the company’s declining revenue and user numbers.

So while the S&P 500 was soaring, Twitter bottomed out in the spring of last year around $14.

Traders also were betting heavily against the stock, with Twitter’s short interest peaking at 70 million shares.

Things looked like they couldn’t get any worse.

I call these moments the “peak of pessimism.” And it’s when you need to pile into these stocks… not rush out.

If you bought Twitter back when it was trading for $14.30 and kept it until now, you would have made over 200%!

That’s because revenues started to turn around late last year… and instead of decreasing, they started to rise.

As their top line increased, investors were happy to see the company turn a profit in the first quarter of 2018.

But you didn’t have to just be lucky to buy in at the bottom.

In fact, my Weekly Wealth Alert trading service, I recommended Twitter call options on two separate occasions — call options rise in value when a stock’s price rises — and I knew Twitter was in for a major turnaround.

How did I know Twitter was in store for a major turnaround?

By reading the market! I saw a surge in bullish options activity ahead of Twitter’s first quarter earnings report… meaning something big was about to happen.

Sure enough, we bagged triple digit-winners on both of my Twitter plays.

So the next time you hear about a major stock sell-off, take a closer look.

You might not be able to gauge a stock’s option activity on your own. But you can look for signs that sellers and trades have gone too far — betting on the stock to continue losing despite clear bright spots on the horizon.

When a stock has been sold to the point that it’s undervalued — the peak of pessimism — you can shoot for serious upside if the pendulum starts to swing the other way.

Pair that expected move with options, and you stand to make a ton of fast cash like my Weekly Wealth Alert readers did with Twitter.

It’s just a matter of identifying the small goodness in a company when investors have swung into the abyss of hopelessness. Then ride the pendulum when it inevitably swings the other way.

For more information on how you can start profiting off these valuable swings, check out my exclusive interview with former Bloomberg anchor Adam Johnson.

In it, I detail the entire strategy I use to pinpoint these moves, and even back it up with my trade history.

And the best part — this system is incredibly easy for everyday investors like you to follow.

So what are you waiting for? Let’s make some money.

Yours for weekly profits,

Alan Knuckman

P.S. Due to the exclusive content shared in my interview with Adam Johnson, this interview will be erased from the internet at midnight tonight.

To learn more about this extremely lucrative strategy before it’s deleted…

Which will give you the chance to turn just a small starting stake into more than $135,086 in mere days… Click here.

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From:: Daily Reckoning

How to Strike It Rich in a Trade War

By Mike Burnick

Nilus Mattive

This post How to Strike It Rich in a Trade War appeared first on Daily Reckoning.

Today, I have another special issue of the Rich Life Roadmap.

My colleague (and university classmate!) Mike Burnick is sharing his third contribution to tell you about a big opportunity I can guarantee you don’t know about.

Using his knowledge and his idea, you may be able to set yourself up financially for life.

Read below to see what I’m talking about…

— Nilus

How to Strike It Rich in a Trade War

Dear Rich Lifer,

The trade war is far from over and there’s no telling where markets go from here.

One thing I DO know is my exclusive Amplified Income systems could score you a huge payday no matter how trade wars affect markets next.

Read on below to see how…

Winds of War… A Bull Market Buzzkill?

The winds of war — a deepening trade war — hang heavy over Wall Street.

Investors are starting to bail out on this bull market as a result…

The most obvious catalyst is the tit-for-tat escalation in the Trump administration’s expanding trade war.

To briefly recap: Washington’s opening bid targeted $50 billion worth of Chinese imports with tariffs of 25%. China responded with a $50 billion list of sanctions of its own on U.S. products.

Then Trump upped the ante, threatening import duties of 10% on another $200 billion of Chinese goods. And just for good measure, Trump raised the stakes again soon after, threatening another $200 billion worth of tariffs if China dared to match the first $200 billion in U.S. import duties.

But the real bull market buzzkill came with a one-two punch that landed squarely on the bull’s jaw.

The Trade War “Nuclear Option”

First, the European Union retaliated for previously announced U.S. tariffs on steel and aluminum with $3.3 billion worth of trade barriers on American imports.

Then it came to light that Washington may restrict Chinese investment in U.S. technology companies, which could have much deeper consequences for technological innovation on both sides of the Pacific.

That last item could prove to be the “nuclear option” in this escalating global trade war.

China can’t respond to our tariffs in kind because they simply don’t buy enough of our stuff.

Beijing’s only realistic option is to retaliate directly against American companies trying to compete in China.

Watch out for thinly veiled regulatory sanctions directed against U.S. companies operating in China.

Of course, China is a huge and fast-growing market that U.S. businesses are salivating over. Direct sanctions against U.S. companies doing business in China would imperil U.S. corporate sales and profit growth from one of our best customers.

Things are getting ugly, which is why stocks are under renewed selling pressure.

Investors are getting nervous about America’s escalating trade offensive against China, the European Union, Canada and Mexico… basically with ALL of our major trading partners.

Big-cap stocks in the Dow and S&P with big overseas sales like technology and industrial shares are getting crushed as a result.

That’s a sign that some investors believe corporate profits, and perhaps the economy itself, could be peaking.

And a full-blown trade war could tip us over the edge, perhaps into a premature recession.

Others believe that calmer heads will ultimately prevail, keeping the U.S. out of an all-out trade war with the rest of the world.

Too early to say for sure at this point, but there’s one thing you can do to limit your risk and even capitalize bigtime off this trade war.

What I’m about to share with you is a culmination of my life’s work of more than 30-years in the investment business.

It’s been a labor of love for me, a project in development for many years.

Now Amplified Income is ready for “prime time.”

But first let me show you a how exactly my systems works for outsized gains using a proven backtested example.

Your Trade War Insurance

It can be hard to grasp how options work — especially if you’re new to the world of stocks.

But there’s a good chance you already have a contract very similar to an option. I’m talking about car insurance.

You can think of buying options a bit like buying an insurance policy for your car.

Think about it: Car insurance pays out when your car gets damaged during your policy cycle.

Likewise, options pay out when a stock moves through a set price during the option’s life span.

Just like with car insurance, you pay a premium to purchase an option. If the option is likely to have to pay out, then the premium you pay is higher — just like trying to insure your teenage son to drive your Ferrari.

Alternatively, some traders prefer to sell options.

You see, there are two sides to every trade — a buyer and a seller. For you to buy a stock, someone must be willing to sell it. The same is true for options. If someone wants to buy a put or call option, there must be someone selling it.

Now, it may sound counterintuitive to sell something you don’t own. But don’t think of it like that. Instead, imagine you’re writing the options contract and then putting it up for sale. In fact, the act of selling puts and calls you don’t own is called “writing” options.

That doesn’t mean you literally need to provide a written contract to sell options. Instead, you just tell your broker what kind of option you want to sell and he’ll put it on the market in your name.

You’ll be paired with someone looking to buy that option, and the price the buyer pays for the option — the premium — will be deposited into your account.

You’ve just scored instant income — and that money is yours to keep regardless of what happens to the stock price.

And no how a trade war affects the markets you can still win big.

My Amplified Income system delivers you potentially massive paydays and provides your wealth the insurance it needs against the worst the market throws at you.

This system is the culmination of my life’s work.

I’ve developed the most unique combination of indicators and strategies around.

Additional, extensive backtesting has shown my …read more

From:: Daily Reckoning

The Wrong Chinese Stocks Are Falling… Which Just Opened A Quick Buying Window

By Jody Chudley

ALTTAG

This post The Wrong Chinese Stocks Are Falling… Which Just Opened A Quick Buying Window appeared first on Daily Reckoning.

While President Trump’s trade war with China (and most every other country) has had little impact on the stock market here in the United States, it has had a very noticeable impact in China.

Since the start of 2018, while the S&P 500 is up more than four percent, the Shanghai Composite Index has actually sunk by more than 15 percent, with most of the decline coming in recent weeks as President Trump’s tariffs have been unleashed.

A fifteen percent stock market decline in six months is a major move, even for an emerging nation. If the U.S. market had dropped by 15 percent over the same time period it would be major news.

But there is more to the story of China’s stock market underperformance than just what has happened so far in 2018…

The chart below details the performance of the S&P 500 and the Shanghai Composite over the entire last decade.

While the U.S. market is up 125 percent, the Chinese market is flat — up just 3 percent over the last ten years despite an economy that has continued to grow.

With that kind of underperformance (both recent and long-term), you can bet that there are some serious bargains to be had in Chinese stocks.

Two Trade-War-Proof Chinese Stocks Set To Profit

President Trump’s tariffs are focused on goods that get exported to the United States. Those tariffs aren’t going to have any impact on the demand for goods and services that are sold within China.

Yet, Chinese stocks that operate only within China have been sold off along with the overall market, in the face of China’s fast-growing middle class and high consumer demand. That doesn’t make sense, and thus, an opportunity (or two) is born.

Opportunity #1 — GreenTree Hospitality Group (GHG)

2018 Share Price High — $25.10

Current Share Price — $17.36

Trump Trade War Sale Price — 30 percent off

Based in Shanghai, GreenTree Hospitality was originally founded in 2004 to provide mid-level hotel accommodations in the Shanghai region.

Since its founding, GreenTree has grown rapidly to become the fourth largest network of economy to mid-scale hotels in China. The company’s network boasts 2,354 hotels with 195,552 rooms in 263 different Chinese cities.

GreenTree is a “pure play” hotel franchisor. Almost 99 percent of the hotel network is operated not by GreenTree itself, but by franchisees. I like that business model because it is capital light and able to generate free cash flow. The franchise model also allows for a much higher rate of growth since the company doesn’t have to finance the building of the hotels themselves.

While GreenTree has grown rapidly since inception, there is still a huge opportunity in front of the company. For context on the size of the remaining prize, consider that while the United States has 20 hotels per 1,000 people… while China has just 4.1

Opportunity #2 — Yum China Holdings (YUMC)

2018 Share Price High — $48.75

Current Share Price — $36.65

Trump Trade War Sale Price — 25 percent off

Having the rights to the KFC trademark in a country of 1.2 billion people where chicken is the by far the preferred source of protein is a nice position to be in.

That is where Yum China Holdings finds itself with the exclusive right to operate and sub-license not just the KFC brand within China, but also Pizza Hut, Taco Bell and two Chinese concepts (East Dawning and Little Sheep).

With just five restaurants per one million people, I would say that Yum China Holdings is operating within the very definition of an unsaturated market. This is a company with huge continued growth potential.2

From a single location in 1987, Yum China Holdings now operates 8,100 restaurants that are spread across 1,200 cities in China. The corporate plan is to at least triple that current restaurant count in the coming years.

Having operated for decades within China has created a big advantage for the company. Over the past thirty years, Yum China Holdings has created loyalty amongst consumers in China and has integrated its brands into popular culture.

China fast food

Yum has created this loyalty by not forcing American tastes onto the Chinese people, but instead tailoring menus to cater to local preferences.

Perhaps you have been to China and tasted KFC’s popular Crayfish burger? Maybe not.

Either way, Trump’s trade war has knocked nearly a third off the market cap of both of these companies yet hasn’t impacted their future growth prospects one bit. That is an appetizing dish no matter what your cultural tastes may be.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

1China’s Hospitality Industry—Rooms for Growth, ATKearney
2About Yum China Page

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From:: Daily Reckoning

The Stock Market Has A Secret $1 Trillion Safety Net

By Zach Scheidt

private equity funds

This post The Stock Market Has A Secret $1 Trillion Safety Net appeared first on Daily Reckoning.

“What if I invest and the market pulls back?”

That’s the question I got from my little brother as we were talking about a few investment ideas for his family.

It’s a thought that many investors have. After all, no one wants to put their hard-earned money into the market only to see stocks pull back in price. And considering how long stocks have been moving higher, isn’t it reasonable to expect a big pullback soon?

Today, I want to show you an important chart that I showed my little brother…

One that virtually ensures that the next market pullback will be small and very short lived.

After all, the biggest investors in the world are chomping at the bit to get more of their money involved…

Why Big Investors Cause Big Market Swings

As I chatted with my brother, the first thing I explained was that markets move higher or lower because of people buying or selling. It’s a basic concept for investors, but certainly one that is worth reviewing.

The more money is spent buying stocks, the higher prices go. That’s because some shareholders are only willing to sell at a higher price. So the more shares that are bought, the higher the price naturally goes.

Next, we talked about who the big buyers and sellers are.

Often individual investors cause small moves in the market because they buy and sell relatively small amounts of stock.

But when big investors like pensions, endowments, and mutual funds buy stocks, they can move the market significantly!

Big buy orders from these institutional investors can cause the market to trade higher very quickly. And since these investors often take a lot of time to buy all of the shares that they want, institutional investors can also keep the market moving higher for an extended period of time.

So it pays to be on the side of the biggest investors, and to be invested before their big buy orders hit the market.

Once we got the groundwork covered, I then pulled out a simple picture that explains why I’m not concerned about a market pullback anytime soon.

The $1 Trillion Dollar Safety Net

Private equity investors are the 800-pound gorillas when it comes to institutional investors.

These financial companies take money from the very biggest investment firms and figure out where to put it to work. Sometimes they buy real estate, sometimes they buy stocks, and sometimes they buy entire companies outright!

I always pay attention to what these private equity companies are doing, because their buy and sell orders have a huge effect on where the market is headed.

In particular, I watch how much available cash — or “dry powder” — these companies are holding. Because the more dry powder in play, the more anxious private equity companies are to invest their money.

After all, these firms only generate fees from the money that is actually invested. So to make a profit, these companies have to put that money to work!

Take a look at the picture I showed my brother…

The line at the far right hand side shows us that private equity firms now have well over $1 trillion available to invest.

To put that number into perspective, the entire U.S. stock market is worth a bit less than $30 trillion.1 So these firms have enough cash to make a serious change to the entire U.S. stock market!

Why is this important to us as investors?

Because this $1 trillion acts as a virtual backstop for the market.

Whenever stocks pull back, you can bet your life that the Ivy League managers at these private equity firms are pouring over the market looking for places to put their capital to work. And the farther stocks potentially fall, the more money these guys will put to work.

Remember, these private equity companies have a huge incentive to invest their capital. Because without making new investments, these firms can’t continue to generate profits.

Also remember that when these firms put their cash to work, they’ll naturally drive the market higher. After all, the more money invested in U.S. stocks, the higher stock prices trade.

It’s no coincidence that the market has continued to trade higher as private equity dry powder has grown. Because the more these companies invest, the higher the market moves.

So today, you can invest in our best opportunities with confidence. Because we know the 800-pound gorillas who really affect stock prices are in place to keep the market from a major pullback

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
TwitterFacebookEmail

1The U.S. Stock Market Is Now Worth $30 Trillion, Barron’s

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From:: Daily Reckoning

The U.S. Dollar: A Victim of Its Own Success

By James Rickards

Chart 1

This post The U.S. Dollar: A Victim of Its Own Success appeared first on Daily Reckoning.

America’s most powerful weapon of war does not shoot, fly or explode. It’s not a submarine, plane, tank or laser. America’s most powerful strategic weapon today is the dollar.

The U.S. uses the dollar strategically to reward friends and punish enemies. The use of the dollar as a weapon is not limited to trade wars and currency wars, although the dollar is used tactically in those disputes. The dollar is much more powerful than that.

The dollar can be used for regime change by creating hyperinflation, bank runs and domestic dissent in countries targeted by the U.S. The U.S. can depose the governments of its adversaries, or at least blunt their policies without firing a shot.

Before turning to specific tactics, consider the following. The dollar constitutes about 60% of global reserves, 80% of global payments and almost 100% of global oil transactions. European banks that make dollar-denominated loans to customers have to borrow dollars to fund those liabilities.

Those banks do their borrowing in the eurodollar deposit market, or with dollar-denominated commercial paper or notes. Being based in Switzerland or Germany does not allow you to escape from the dollar’s dominance.

The U.S. not only controls the dollar itself. It controls the dollar payments system. This consists of the Treasury’s digital ledger of holders of U.S. debt, the Fedwire payments system among U.S. Fed member banks and the Clearing House Association (successor to the New York Clearing House and proprietor of CHIPS, the Clearing House Interbank Payments System) composed of the largest U.S. banks.

A dollar payment going from a bank in Shanghai to another bank in Sydney runs through one of these U.S.-controlled payments systems.

In short, the dollar is the oxygen supply for world commerce and the U.S. can cut off your oxygen whenever it wants.

The list of ways in which the dollar can be weaponized is extensive. The International Emergency Economic Powers Act of 1977, IEEPA, gives the president of the United States dictatorial power to freeze and seize assets and block payments.

The Treasury’s Office of Foreign Assets Control, OFAC, maintains a blacklist of individuals and companies with whom financial intermediaries, such as banks and credit card companies, are forbidden to transact. Individuals on the OFAC list are like dead men walking when it comes to travel and business.

The Committee on Foreign Investment in the United States, CFIUS, can block any foreign acquisition of a U.S. company on national security grounds.

This list of financial weapons goes on, but you get the idea. The U.S. uses the dollar to force its enemies into fronts, crude barter or the black market if they want to do business.

Examples of the U.S. employing these financial weapons are ubiquitous. The U.S. slapped sanctions on Russia after the 2014 annexation of Crimea and invasion of Eastern Ukraine. The U.S. waged a full-scale financial war with Iran from 2011–13 that resulted in bank runs, hyperinflation, local currency devaluation and social unrest.

The U.S. was pushing Iran to the brink of regime change in 2013 when President Obama declared a truce to pursue what became the Joint Comprehensive Plan of Action, JCPOA, or the Iran nuclear deal. President Trump has now ended that deal and the financial war with Iran has resumed where it left off in 2013, but tougher than ever.

The U.S. is slapping stiff Section 301 penalties on China for theft of intellectual property. Other obvious victims of U.S. financial weapons are North Korea, Syria, Cuba and Venezuela.

The actions described above did not arise in the normal course of trade and finance. The Russian, Iranian and other sanctions noted are explicitly geopolitical, while the Chinese sanctions are geostrategic to the extent the U.S. and China are vying for technological supremacy in the 21st century.

None of these sanctions would be effective or even possible without the use of the dollar and the dollar payments system.

Yet for every action there is a reaction. America’s adversaries realize how vulnerable they are to dollar-based sanctions. In the short run, they have to grin and bear it. They’re fully invested in the dollar both in their reserves and in the desire of their largest companies like Gazprom (Russia) and Huawei (China) to become major global players.

Transacting on the world stage means transacting in dollars.

And dollar-based sanctions are a powerful financial weapon for the U.S. But our adversaries and so-called allies are not standing still. They are already envisioning a world where the dollar is not the major reserve and trade currency.

In the longer run, Russia, China, Iran, Turkey and others are working flat-out to invent and implement nondollar transactional currencies and independent payments systems.

Russia has begun a major research and development effort in the area of distributed ledger technology (also known as “blockchain”) so that financial transactions can be processed and verified without reliance on Western-controlled banks.

This will not involve dead-end cryptocurrencies like bitcoin but entirely new utility tokens and cryptos. Imagine something like a putincoin and you’ll be on the right track.

China is pushing its trade counterparties to accept Chinese yuan as payment for goods and services. The yuan is a small part of global payments today (about 2%) but the yuan may get a boost as the U.S. sanctions on Iran kick in.

China is Iran’s biggest customer for oil, and if U.S. sanctions prohibit dollar payments for Iranian oil, then Iran and China may have no choice but to transact in yuan.

The International Monetary Fund, IMF, has already announced efforts to put its world money, the special drawing right, SDR, on a distributed ledger. This would make the SDR a global cryptocurrency for settling balance of payments transactions among China, Russia and other IMF members, also without reliance on the dollar payments system.

Alongside the new money in cryptocurrencies, there is the oldest form of money, which is gold. The use of gold is the ideal way to avoid U.S. financial warfare.

Gold is physical so it cannot be hacked. It is completely fungible (an element, …read more

From:: Daily Reckoning

The Tragic Logic of Mercantilism

By James Rickards

This post The Tragic Logic of Mercantilism appeared first on Daily Reckoning.

My readers are familiar with my thesis that the world responds to a situation of too much debt and not enough growth with first currency wars, then trade wars and finally shooting wars.

Currency wars begin in a condition of too much debt and not enough growth. Countries steal growth from their trading partners by cheapening their currencies to promote exports, discourage imports, import inflation and increase their GDP.

This works in the short run but always fails in the long run because of retaliation when trading partners respond to devaluation by devaluing their own currencies.

The currency wars are eventually followed by trade wars in which countries try to improve GDP by raising tariffs on imports from trading partners.

Trade wars fail for the same reasons as currency wars — retaliation. Tariffs are met with countertariffs until world trade contracts and the entire world is worse off.

Trade wars are not limited to tariffs and reduced trade. As with any war, there is a lot of collateral damage.

Finally come the shooting wars, which actually do improve growth through war manufacturing and post-war rebuilding but at a very high cost in death, destruction and war debt.

This pattern occurred in the 1920s and 1930s and seems to be happening again.

The currency wars began in 2010. The trade wars began in 2018, and the shooting wars may not be far behind. From the South China Sea to the Persian Gulf, tensions are already simmering.

In the case of the China-U.S. trade war, this collateral damage consists of reductions in direct foreign investment, deferred capital spending, reduced merger-and-acquisition activity and supply chain disruptions.

The China-U.S. trade war is not a short-term bit of posturing. It is serious, dangerous and will get worse before it gets better. Let’s hope that the historical segue into shooting wars does not occur this time.

But a trade war does not have to lead to a shooting war to be devastating. A financial crisis is a distinct possibility.

Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, 2007 and 2008. That’s about once every five years for the past 30 years. There has not been a financial crisis for 10 years so the world seems overdue.

It’s also the case that each crisis is bigger than the one before and requires more intervention by the central banks. In the next crisis, possibly soon, the central banks themselves will need to be bailed out, probably by the IMF.

Knowing this economic history is useful, but can investors actually see the next crisis coming in time to react? The answer is “yes” if you’re looking in the right places and listening to the right voices. Right now, the voices warning of financial collapse are no longer from the fringe — they’re from the heart of the global power elite.

The chancellor of Germany, Angela Merkel, part of the G-20 and G-7 leaders’ summits, has warned that current trade disputes are “taking on the contours of a trade conflict,” and says, “It’s worth every effort to try to defuse this so that this conflict doesn’t become a war.” Merkel is not alone.

Global financial elites, including the IMF’s Christine Lagarde and financial guru Mohamed El-Erian, have also warned about the potential for another financial crisis if currency war and trade war issues are not soon resolved.

Merkel, Lagarde and El-Erian are not fringe player or bloggers. They are the global financial elite. If they’re concerned about financial stability, maybe you should be concerned also.

Preparation means 10% percent of your investable assets in gold or silver and another 30% in cash. That allocation will preserve wealth and provide dry powder for bottom-fishing in the crisis to come.

Regards,

Jim Rickards
for The Daily Reckoning

The post The Tragic Logic of Mercantilism appeared first on Daily Reckoning.

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From:: Daily Reckoning

My #1 Lesson for Stock Analysis

By Nilus Mattive

Img 1

This post My #1 Lesson for Stock Analysis appeared first on Daily Reckoning.

I typically base my investment recommendations on fundamental measures. For example, I favor companies that have solid earnings, long dividend histories, and reasonable valuations.

At the same time, there’s one more thing I do before I make any final decision – and that’s look at the investment’s chart.

Yes, there was a time earlier in my career when I completely dismissed charts and all related technical measures as pure voodoo.

However, after watching things for 20 years, I recognize chart analysis for what it really is: An immediate look into the recent history of a given investment or market.

Charts represent the wisdom (or stupidity) of many thousands of individual investors all wrapped up in a single picture.

And by overlaying some very basic technical measures, charts can help determine favorable points at which to buy or sell.

Now…

Are charts foolproof? Absolutely not!

Nor do I think they should be the primary determinant of any action you decide to take.

But at the very least, they often become self-fulfilling prophecies… and they can give us good information about where major levels of support and resistance reside.

For example, take a look at this recent chart of gold…

As you can see, I drew a couple horizontal lines on the chart.

The first one from the top is right near $1,350 (the yellow metal’s per-ounce price).

You’ll notice that this level was right about where gold previously topped out going into the fall of last year.

You’ll also see that once it went a bit above that level it crashed down to the $1,300 level represented by the next blue horizontal line down the chain.

Then, after playing around that price for the rest of the year it pretty much plunged down another 50 points to just above $1,250 and quickly bounced back straight up to that $1350 level once again.

Since the beginning of this summer, it’s dropped back down in a very similar pattern to the one that took place last fall.

Will the current $1,250 area hold as a new bottom?

That’s what the basic, big, thick line approach can’t tell us.

But the point of today’s column is less about helping you time gold’s next short-term move and more about understanding why charts can be helpful.

Because the truth is that nearly any chart you look at will likely demonstrate the type of patterns of support and resistance that I just outlined for the yellow metal.

And what’s even more interesting is that these levels often revolve around big, whole numbers.

A lot of folks would write this off as coincidence. But I attribute it more to human nature.

After all, people draw lines in the sand like this all the time: Dow 10,000… oil at $100 a barrel… bitcoin at $6,000 and so on.

Newspaper headlines and other media outlets also reinforce these kinds of numbers repeatedly.

End result: These become natural places for people to stop, pause, and reconsider their investment theses (assuming they even had them in the first place).

What’s more, nobody likes taking a loss.

So whenever you see a period of consolidation on a chart, it means a lot of transactions took place at that price level.

This is precisely why the minute the same level is breached in the future, hordes of new sellers come out of the woodwork – they simply don’t want to watch their previous purchases go underwater!

And that’s how an area that was once support quickly becomes an area of resistance going forward.

Now drawing these lines is more art than science, and there is always a little wiggle room in any given level of support or resistance.

You can see that from my gold chart. For example, I could have easily added in $1,325 and $1,375 as well.

Regardless, I think even the most conservative investor can learn a thing or two by pulling up a simple chart before they decide to pull the trigger.

That’s why I always look at a few charts – over several different time horizons – before I make any type of move with my own money or recommend any new action to readers.

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, Rich Life Roadmap

The post My #1 Lesson for Stock Analysis appeared first on Daily Reckoning.

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From:: Daily Reckoning

Here’s Why Earnings Season Matters… And How YOU Cash In!

By Alan Knuckman

Alan Knuckman

This post Here’s Why Earnings Season Matters… And How YOU Cash In! appeared first on Daily Reckoning.

If you watch business news channels regularly, you’ll start to notice a pattern. Every three months, like clockwork, they’ll devote hundreds of hours of programming to a single topic.

For about six weeks, you’ll hear the same words over and over and endure an endless parade of “breaking news” interruptions. Near the end of it, you’ll be ready to switch the channel to soap operas for something a little less dramatic.

But then it all suddenly goes away… at least for a few months.

It’s called earnings season — when companies report their quarterly financial results. The media focuses so much attention on these numbers because they can help you make smarter investment decisions… even if you don’t own any shares of the companies being discussed.

Of course, if you are a shareholder, these updates are critical. You’ve forked over capital expecting a return — so naturally you want to be kept in the loop.

For everyone else, there are three major things to look for during earnings season:

  1. Earnings surprises
  1. Management’s outlook
  1. Bellwether companies.

An earnings surprise is one possible result of analysts’ favorite pastime — estimating how much money a company will make in a quarter.

They use their knowledge to guess how much profits a company will make and divide it by the number of shares outstanding.

This is called earnings per share… essentially, how much each share would be worth if the company were to distribute its profits to shareholders.

Since analysts use different methods in their calculations, they come up with different numbers. News organizations average out the estimates of leading analysts, which becomes the “consensus.”

An earnings surprise is when the company reports a different figure than what the analysts expected.

If earnings per share comes in higher than analysts’ estimates, it’s called a “beat.” The opposite is a “miss.”

A beat or a miss causes a lot of volatility in the company’s share price. A beat means the company is stronger than most people thought, which usually convinces investors to buy the stock. A miss, of course, means the company isn’t doing as well as people thought.

Another key part of the earnings announcement is management’s outlook on earning per share next quarter and next year.

This is important because stocks are forward-looking, meaning their prices reflect where investors expect shares to be in future, whether up or down.

So positive sentiment coupled with strong results tend to help maintain a bullish trend in the stock price.

On the other hand, sometimes earnings are great, but management sees a potential slowdown in earnings. It’s one reason why a stock’s price could fall even if it beats earnings estimates.

The last reason why earning season is so important is because we can learn clues about the general state and direction of major industries, if not the entire economy.

Bellwether companies are big blue chip stocks that lead the herd. If they’re reporting good results, then the rest of their sector tends to follow suit…

And if enough bellwethers from each industry are thriving, the rest of the stock market tends to do the same.

In other words, when bellwether companies announce earnings, smart investors pay attention.

So the next time a financial news channel breaks into regular programming to talk about a company’s latest earnings, pay attention.

An earnings miss or beat could open an opportunity to buy a great stock at a bargain price… or lead to a lucrative options play.

Management’s future earnings outlook could also help you time some stock option trades.

And bellwether companies’ quarterly results can give you insights on stocks you already own… or help you find other industries to explore.

It’s certainly a better strategy than taking a drink every time a talking head says, “earnings.”

Yours for Weekly Profits,

Alan Knuckman
Floor Trader, The Daily Edge
EdgeFeedback@AgoraFinancial.com

The post Here’s Why Earnings Season Matters… And How YOU Cash In! appeared first on Daily Reckoning.

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From:: Daily Reckoning

The Art of the Deal Vs. The Art of War

By Mike Burnick

Image 1

This post The Art of the Deal Vs. The Art of War appeared first on Daily Reckoning.

Today, I have another special issue of the Rich Life Roadmap.

My colleague (and university classmate!) Mike Burnick is sharing his second contribution to tell you about a big opportunity I can guarantee you don’t know about.

Using his knowledge and his idea, you may be able to set yourself up financially for life.

Read below to see what I’m talking about…

— Nilus

The Art of the Deal Vs. The Art of War

Dear Reader,

Today, showing you the consequences of irrational trade policies and how you can protect yourself from it.

Read on below…

At the risk of beating a dead horse on the topic of trade wars, the sequence of unfolding events is making me cautious near term.

Let me explain why.

First, for all those market pundits, analysts and investors who are following the twists and turns of this trade tiff using Trump’s Art of the Deal as their playbook…

I have a better read for you. Pick up a copy of Sun Tzu’s, The Art of War instead!

The Trump administration has taken a bellicose, saber rattling approach to its trade dealings since day one, with different officials often contradicting each other and the President.

That sows the seeds of uncertainty, and one thing financial markets hate is uncertainty.

Also, Washington seems to relish the idea of bullying the Chinese in public, rather than negotiating in private. That’s certainly Trump’s style, no doubt, but it’s also a risky strategy.

To quote Sun Tzu: “Do not press a desperate foe too hard.”

China WILL Fight Back

China doesn’t like to be chastised publicly any more than anyone else, but culturally, saving-face may be more important to the Chinese.

Source: BofA Merrill Lynch Global Research

At the end of the day, the U.S. has more to lose from an all-out trade war than most of our trade partners, including China and the European Union (EU).

According to analysis by Merrill Lynch economists, roughly 8% of the entire U.S. economy is vulnerable to a trade war, as you can see in the chart above. Meanwhile, only 4% of China’s GDP is at risk. Europe has even less exposure to deeper trade sanctions.

The longer this noisy posturing goes on, the more it weighs on both investor and business confidence.

Ultimately, an economic slowdown could become a self-fulfilling prophecy. That is, the more uncertainty created by this confusing trade spat, the more likely investors will be to raise cash, go on summer vacation and wait things out.

Also businesses will more than likely hold off on capital investments until the dust settles.

Here’s another Sun Tzu quote that I hope our trade representatives reflect on: “The greatest victory is that which requires no battle.”

Unfortunately, policy makers in both Washington and Beijing don’t seem to care.

An all-out trade war is here and has financial markets on edge around the globe.

Who Get Hurts Worst?

Stock prices are choppy in the U.S., Europe and Asia. However, no stock market has gotten hurt more than Trump’s favorite trade target, China.

China’s Shanghai Composite Index of mainland stocks extended its decline this week to a loss of more than 20% since the January high, as you can see in the chart below.

Image 2

Source: Bloomberg

For most market watchers, that’s the definition of a bear market. And it’s China’s second bear market in less than four years!

Nearly $2 trillion of China’s stock market value has gone up in smoke since the first of this year. It’s the heaviest financial toll claimed by escalating trade tensions between U.S., China and our other key trading partners.

Now, other global markets are looking increasingly vulnerable.

Market volatility globally has coincided with a rapid devaluation in China’s currency in recent weeks.

The yuan tumbled 3% over the past two weeks. The biggest drop in China’s currency since Beijing deliberately devalued the yuan in August 2015. That sparked a 26% sell-off in Chinese stocks.

Some believe Beijing could be at it again. Another directed devaluation of the yuan to make Chinese exports cheaper to foreign customers.

Most U.S. investors don’t fret much about the loss of a couple trillion dollars in China’s stock market value.

After all, there aren’t many American investors with significant holdings in Chinese stocks. However, there’s a contagion risk.

A free-fall in China’s stock market, and other emerging markets, could trigger the same in U.S. stocks, just as it did in 1998 and more recently in 2015.

In the aftermath of China’s unexpected currency devaluation in August 2015, the S&P 500 Index also tumbled about 12% in two months.

After a brief rally, the blue chip index stumbled another 13% in early 2016!

Bottom line: Keep a watchful eye on the yuan, as well as emerging stock markets.

Especially China’s.

If this market continues to fall, it could quickly carryover to U.S. stocks.

Mike Burnick

Mike Burnick

Contributor, Rich Life Roadmap

Chief Income Expert, Mike Burnick’s Wealth Watch

The post The Art of the Deal Vs. The Art of War appeared first on Daily Reckoning.

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From:: Daily Reckoning

Protect Yourself From the “Crazy Man Theory”

By James Rickards

Nixon and Trump

This post Protect Yourself From the “Crazy Man Theory” appeared first on Daily Reckoning.

One topic that has received a lot of attention lately is what some call the crazy man theory of negotiation.

This theory says that a rational actor trying to optimize the outcome of a negotiation can benefit from making the other party to the negotiation believe he’s mentally unstable. This perceived instability by one side throws the other side off-guard and confuses their analysis. This confusion can then be exploited to optimize the outcome for the presumed crazy man.

A simple illustration is a chess game, the ultimate in rational calculation and decision-making.

The two sides in chess are white and black; white goes first. White might open with queen’s pawn to queen’s pawn 4, a traditional opening. Black sees this traditional opening and immediately eliminates 19 other possible openings and thousands of possible second moves by white from his calculations.

White has chosen a path but ultimately has given up millions of other paths. Black makes his first move accordingly. White assesses black’s gambit and either proceeds with his original plan of attack or adjusts as needed.

The game proceeds from there, rational move followed by rational move until the endgame.

But suppose instead black simply raises his forearm and wipes all the pieces off the board onto the floor, looks up at white and says, “Your move, pal.” That’s the crazy man theory in action.

I’ve encountered many crazy man negotiators in my four-decade career as a lawyer. I don’t negotiate that way myself, but I’ve seen it in action. Goldman Sachs infamously threw spitballs as I was negotiating the rescue of LTCM in 1998.

At one point Goldman lobbed in an offer to buy LTCM, signed by Warren Buffett and Jon Corzine, while Corzine’s people were at the Fed simultaneously pretending to play nice with the Wall Street consortium.

That crazy man tactic almost worked until Buffett’s lawyer failed to get Buffett on the phone to approve my required changes (Buffett was on a fishing trip in Alaska with Bill Gates at the time and out of cellphone range). So I told Buffett’s lawyer, “Nothing done” and went back to the Fed’s plan.

Still, crazy man tactics can be productive. If you have a specific goal in mind and a crazy man is in action, you might say to yourself, “OK, this guy is nuts. What will it take to settle him down, get him back to the table and get a deal done we can both live with?”

The crazy man also burns up time and energy because your calculations and prior progress are often thrown in the trash. The crazy man literally wears you down.

The key attribute for dealing with a crazy man negotiator is patience. Your most powerful weapon is just walking away from the table. That’s how you turn the tables and wear out the crazy man. Still, it’s not easy.

One of the greatest challenges for investors today is that there are several crazy man negotiators on the loose.

First and foremost are U.S. President Trump, North Korea’s Supreme Leader Kim Jong Un, Israel’s Prime Minister Benjamin Netanyahu and Iran’s Ayatollah Ali Khamenei.

I would put other world leaders in the rational camp (more my style) including Russian President Vladimir Putin, China’s President Xi Jinping and German Chancellor Angela Merkel. Of course, the difficulty with this mix of crazy men and rational actors is that you never know when all of the chess pieces will end up on the floor.

President Richard M. Nixon and President Donald J. Trump have both exhibited what some call the crazy man style of negotiation. The idea is to act in unexpected ways to keep opponents off balance and to leave the impression they may resort to extreme measures if they do not get what they want.

Crazy-man negotiating tactics have a long pedigree. President John F. Kennedy took the world to the brink of nuclear annihilation with a credible threat to attack Russia during the 1962 Cuban Missile Crisis.

President Nixon shocked the world with his 1972 visit to China, after decades of U.S. isolation of China and Nixon’s long career as a communist baiter.

President Reagan literally got up and walked out of the room at his 1986 nuclear summit with Russia’s Gorbachev in Reykjavik, Iceland. A shocked world was unsure whether Reagan was on his way back to Washington to order a first strike.

All of these crazy man tactics worked. Russia did remove its missiles from Cuba in 1962. The U.S. did use its new relationship with China after 1972 to isolate Russia and win the Cold War. Gorbachev and Reagan did return to the negotiating table with Russia more willing to sign substantive treaties once they understood U.S. resolve not to be disadvantaged.

Yet there’s one crucial difference between the crazy men of yesterday and those today.

Kennedy, Nixon and Reagan were all highly intelligent and seasoned negotiators (Kennedy less so than the others), advised by the top strategists at the time including Dean Rusk, Henry Kissinger and James Baker among others. They were highly rational on the inside but found the crazy man posture tactically useful on limited occasions. In short, they weren’t too crazy.

Today, it’s hard to tell. Trump and the other new crazy men use irrational posturing almost full time. They are impulsive and don’t seem to listen to expert advice. This makes it harder to see the endgame and harder for the rational players to see through the pose. The chess pieces don’t just end up on the floor occasionally; they more or less stay there.

Trump called Kim Jong Un “little rocket man” and threatened “fire and fury.” Kim called Trump a “dotard” and threatened nuclear annihilation of the United States. The Ayatollah Khamenei shouts, “Death to America,” while Netanyahu threatens to destroy Iran’s uranium enrichment capability the minute one centrifuge is turned on.

The Iran nuclear deal involving the U.S., U.K., France, Russia, China and Germany took two years to negotiate and was ended in two seconds with Trump’s signature on …read more

From:: Daily Reckoning