More Planning Made Simple: How to Avoid Scrambling Your Retirement Nest Eggs

By Nilus Mattive

Nilus Mattive

This post More Planning Made Simple: How to Avoid Scrambling Your Retirement Nest Eggs appeared first on Daily Reckoning.

You know the value of diversifying your financial portfolio. For example, when your stock portfolio slips, your other investments—bonds, Treasury notes, etc.—shore up those temporary downticks before the stop loss or limit order directives kick in.

It’s about balance and minimizing risk.

Pause for a moment and inventory your retirement savings strategy. Your 401(k) and IRA are chugging along nicely. You contribute the maximum to each. You are satisfied that your stockbroker is looking after everything, and your investments in stocks are good for the long haul.

So, you are in your prime earning years and know the value of spending less than you earn. That means you are funneling that excess income somewhere and paying interest on its dividends and earnings.

What about your life insurance?

Did you know that annuities are a special kind of life insurance?

Purchasing an annuity from a reputable company is also another way to diversify your retirement planning.

When you open an annuity account, you pay a large lump-sum premium up front. At some agreed time in the future, you—the annuitant—will receive a payout on a scheduled basis. The remaining principal continues to earn interest. Anything left in the account after you die goes to your heirs.

Annuities come in two flavors…

The two categories of annuities are immediate and deferred. The latter two terms relate to the payout options in the annuity plan:

1. The immediate annuity is rather like a reverse mortgage without chipping away at your estate. You contribute a lump sum up front. After 30 days you receive monthly payments while the principal continues to earn interest.

2. The deferred annuity also requires an upfront payment. Over the agreed life of the annuity, your account accumulates interest—either fixed or variable, depending on the annuity you purchased.

At some future date, you start drawing the money as annuitized payments. It’s like a second paycheck.

Deferred annuities also come in two varieties…

Fixed annuities are like CD investments. They pay a guaranteed interest rate, frequently higher than a bank CD.

Variable annuities, on the other hand, pay interest based on the insurance company’s selection of financial market investments.

Annuities often get a bad rap…

Annuities have their drawbacks. They don’t have the big returns and dividends that other investment plans offer. You must have the cash to set aside and the patience to accrue their long-term value. There are setup fees and penalties for early withdrawal.

However, every investment has its drawbacks. The stock market is volatile and poses risk; bonds have low returns. Hoarding cash in the bank won’t keep up with inflation.

Moreover, when it comes time to start drawing down on the principal, you have no guarantee that your investments won’t expire before you do.

Annuities are the hedge against the emotion of fear that you will run out of funds before you die.

10 ways that annuities reduce risk to your retirement plans

Annuities are a piece in your retirement puzzle…

You have done your research. You know the risks. Your money market and stock portfolio have done well.

However, you are entering a stage in your life where risk reduction is quickly becoming more important than high returns.

So, an annuity—especially a fixed annuity—can contribute to your low-risk retirement strategy in the following ways:

1. With an annuity, you convert accumulated assets into a regular cash flow. Your annuity payout is similar to a paycheck, without liquidating your principal.

2. With a fixed annuity, you know exactly how much interest your savings will earn. Interest rates in fixed annuities are guaranteed.

3. For the bold: If you’re still into a bit of a risk, you could consider buying both fixed and variable annuities. The former will earn more when the stock market is doing well. The latter (the fixed annuity) will grow no matter what.

4. There is no upfront or annual limit to contribution to an annuity account. A variable annuity provides an instant tax shelter for your extra cash contributions.

5. The lifetime benefits of annuities accrue immediately. During the contribution phase, the account grows tax-free.

6. Annuities are tax deferred. You pay no tax on the annuity principal investment or the accrued earnings.

7. Taxes are only due when the payouts begin. The payouts typically come at a time when you are in a lower tax bracket.

8. Annuities offer a safe investment strategy. The biggest risk to annuities would be an insurer’s default because of bankruptcy, etc. So, it is important to choose a stable and reputable insurer.

9. As an insurance policy, the annuity provides survival benefits. Your heirs inherit the annuity without the delay of probate.

10. With a long-term care rider, you can receive both a retirement income and finance any long-term care expenses. This type of annuity does double duty without losing premium payments if you don’t need long-term care.

It’s about peace of mind…

Let’s review:

A fixed annuity can be an ideal way to protect a large portion of your retirement savings. When you reach the limits of your contributions to your IRA and 401(k), you can put that money to work.

Annuities are safe and stable. You earn a guaranteed rate of growth and accrue compound savings advantages as well as tax deferrals.

Your savings are not exposed to the volatility of the stock market. If the market dips right before you retire, it could take a chunk of your portfolio with it.

As part of estate planning, fixed annuities are not subject to probate. You spouse has the option to assume uninterrupted ownership, or continue receiving your payments during the contract period.

So, if you are at a stage in your life where you would like to grow that retirement nest egg, do some research and find a reputable annuity vendor. Round out your portfolio with an annuity plan to make your nest egg into a tasty omelet.

To a richer life,

Nilus Mattive
Editor, Rich Life Roadmap

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From:: Daily Reckoning

How I Made Millions By “Swimming With The Current”

By Zach Scheidt

zach biking

This post How I Made Millions By “Swimming With The Current” appeared first on Daily Reckoning.

You’ve probably heard there are no shortcuts when it comes to growing your wealth. Hard work, patience, and discipline pay off in the long run.

Sound familiar?

Hopefully you know me well enough to understand that I’m all for hard work, patience and discipline.

But today, I want to tell you about one shortcut that actually can help you build your wealth more quickly.

I was thinking about this shortcut this past weekend because I took a similar shortcut in the Whistler Ironman triathlon that I was competing in.

I always laugh at how life experiences can tie so closely to the stock market and the opportunities we have as investors…

If you want to finish an Ironman triathlon, you have to look for ways to conserve energy. After all, the race consists of a 2.4 mile swim, a 112 mile bike and a 26.2 mile run.

We started the swim just after 6:00 AM on Sunday and I felt strong as the event began.

About halfway through the course, I made a turn around a buoy and noticed another swimmer next to me. He was a large guy and he happened to be moving about the same speed as me.

I immediately recognized this as an opportunity to save some energy for later.

As each swimmer glides through the water, he or she creates a small current in the water behind. So if you swim in the path immediately behind another athlete, you can actually get swept along within that current.

While not allowed on the bike course, it’s perfectly legal to “draft” behind other swimmers.

This drafting allowed me to keep moving at a quick pace while putting a lot less effort into my stroke. And that allowed me to save strength that I would desperately need on the bike and run course.

I had to laugh when I felt another swimmer tap my feet with his hands a few minutes later.

We were now both swimming in the current created by this athlete. So now two of us were getting a little bit of a break while making this poor guy do all of the work!

Swimming With The Investment Whales

Drafting in the clear alpine lake reminded me of how stocks often move in a trend or “current.” These currents are driven by the buy and sell decisions of the biggest institutional investors.

Just like I was able to slip behind the swimmer in the lake — and get his current to pull me through the water — investors can slip behind these institutional investors and ride the trends in the market.

You see, when there are large buy orders for a stock, the price naturally moves higher. That’s because there are only so many people willing to sell at today’s price. So the more shares an institution wants to buy, the more they’ll have to pay to convince other shareholders to sell.

If you pay attention, you can see this happening in the market.

The best way to spot this action is to look for a stock that is moving higher while its volume is increasing at the same time.

(Volume is simply the number of shares traded in a specific period. And you can see a stock’s volume on just about any free online financial website.)

Institutions have to buy many shares for a position to make a difference in their account. Often we’re talking about millions of shares. And since these institutions are buying such big blocks of stock, it can take them days, weeks, or even months to build a full position.

That’s where the “current” comes in to play.

As these investors build their positions, stocks naturally rise. And if you spot it in time, you can jump in and buy your own shares. Since you’re an individual investor, you can get a position bought quickly — without needing to take weeks to get enough shares to matter.

Then, once you own your shares, the institutional investors will continue to build their positions, driving the stock price higher while you hold your position.

This “drafting” strategy is a perfectly legal and effective way to accelerate your wealth building in the stock market. And it’s a fundamental strategy that I’ve used throughout my career to pull MILLIONS of dollars from the stock market for clients.

All by riding the currents established by institutional investors!

And this is a strategy that you can also take advantage of… If you know where to look, of course.

For more on this strategy and the newest stocks that institutional investors are currently buying hand over fist, click here.

And the next time you’re thinking about adding a stock to your investment account, remember to swim with the current and look carefully for one of these trends with higher volume.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge

P.S. This “drafting” strategy is so powerful that Wall Street has its own special machines reporting these insights DAILY to its traders.

And for a limited time, you too can have access to one of Wall Street’s most prized tools…

That could give you the chance to walk away with $16,209 on average every week!

That’s life-changing money.

But it won’t last long… After all, do you think the Wall Street Elite want the “Average Joe” on Main Street to have access to their secrets?

Click here for the full details.

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From:: Daily Reckoning

“Smart Money” Is Piling Into This E-Commerce Stock (Not Amazon)

By Jody Chudley

Merchant strategy

This post “Smart Money” Is Piling Into This E-Commerce Stock (Not Amazon) appeared first on Daily Reckoning.

If a hedge fund manager who has achieved annualized returns of 23 percent over the past twenty-one years offered you a stock tip, would you listen?

Before you answer, let’s put in perspective how good an annualized 23 percent return over 21 years is:

  • Over the same 21 year period of time, the S&P 500 has increased at annualized rate of just 8 percent per year. The S&P performance isn’t bad, but it is only one-third of what this hedge fund star has achieved
  • That 23 percent rate of return is what is left over for investors after deducting his egregious fees (a flat 2 percent plus another 20 percent of profits). That means his true investment returns are closer to 30 percent
  • A $10,000 investment 21 years ago compounded at 23 percent would be worth $772,693 today versus the $50,553 it would be worth at the 8 percent return of the S&P 500. That’s the magical power of compound interest!

So about that stock tip…

The Outstanding Investor And His Most Recent Major Stock Purchase

The investor I’m referring to is Third Point Capital’s Dan Loeb. As of June 30, 2018, Loeb’s Third Point Ultra Fund has in fact returned 23 percent annualized after fees since it was formed in 1997.

After 21 years, I’m inclined to believe that there is some skill involved here, not just luck.

This week, Loeb just revealed through his second quarter 2018 investor letter that the latest addition to his Third Point portfolio is the online payment company PayPal (PYPL). Loeb also revealed that Third Point started building its position in shares of PayPal in the second quarter of this year.

Based on what Loeb wrote about PayPal in his shareholder letter, I daresay that he hasn’t bought shares of this company looking for a short-term gain. It looks to me like PayPal is going to be a core Third Point holding for years to come.

Loeb believes that this is a fantastic business that is going to grow earnings at a rapid clip for a long time to come.

What Loeb likes specifically about PayPal is that has established a dominant position in its business. He points to the fact that PayPal is an online payments company that currently processes almost 30 percent of all e-commerce transactions globally (excluding China).

That is impressive. I’m hard pressed to think of many companies that hold a 30 percent market share in such an important industry.

PayPal is a company that is ingrained in the future growth of online consumption. There are few — if any — trends that I’d prefer to have exposure to than the growth in e-commerce. I was surprised to learn that even today, e-commerce accounts for just 10 percent of all retail transactions.1 That percentage is going to increase many times over in the coming years and PayPal is going to be a huge direct beneficiary of it.

With 237 million active accounts and 19 million different merchants locked in using PayPal, Loeb notes in his letter that PayPal has a scale advantage that is ten times that of its competitors.

That is the kind of business moat that all great investors dream of.

Click to enlarge

In addition to the rapid revenue growth that the continued global move to e-commerce will bring, Loeb also believe that PayPal has a big opportunity to improve its profit margins by making its operations more efficient.

While PayPal has been around since the late 90s, it has only operated as a standalone business for the past three years since being spun-off by EBay. As a result, there are still low hanging efficiency gains to be picked.

Today, PayPal generates a 25 percent operating profit margin on net revenues. Loeb believes that should be closer to 30 percent and will be as IT service costs are rationalized. There are 18,000 service jobs that are prime candidates for automation.

Doing so will add more than $500 million to PayPal’s bottom line.

Loeb expects that PayPal is going to produce earnings over the next 18 months that significantly beat what analysts are currently estimating. His target price for PayPal is $125 before the end of 2019.

With PayPal shares having pulled back recently, that would mean that there is 50 percent upside to be realized in a pretty short period of time if Loeb’s vision comes to pass.

Given that he has put up a two decade investment track record that is absolutely phenomenal, I wouldn’t be inclined to bet against him.

Here’s to looking through the windshield,

Jody Chudley

P.S. This “follow the smart money” strategy is exactly what your Daily Edge editor Zach Scheidt has used to pull MILLIONS of dollars out of the stock market in his career.

And tomorrow, he’s peeling back the cover on this strategy to help everyday investors like you start profiting! Stay tuned. This is a retirement life-saver you won’t want to miss.

1E-Commerce Retail Sales as a Percent of Total Sales, FRED

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From:: Daily Reckoning

When to Cut and Run vs. When to Double Down

By Nilus Mattive

Chart 1

This post When to Cut and Run vs. When to Double Down appeared first on Daily Reckoning.

Underwater positions – there is no topic that investors would rather avoid talking about.

But as I pointed out in a recent article on diversification, some positions are going to head in the opposite direction of where you want them to.

So the issue is more about when – or IF – you should close out any losing positions in your portfolio.

I generally go against the grain when it comes to this type of decision.

See, a lot of experts will say you should just sell a position when it reaches a particular percentage loss… the whole “cut your losses short and let your winners run” theory.

For more trading-oriented strategies, I think that can make a lot of sense.

It encourages you to be less emotional about your investments… and the discipline automatically limits the amount of capital you can lose on any single trade.

But if you have a longer time horizon, or your goal is generating solid investment income, I’d tell you to reconsider creating arbitrary stop loss signals.

In fact, I have no problem sitting on a losing position because I have seen many come roaring back!

Here’s a recent example from one of my own personal portfolios.

On June 28th of last year, I purchase 428 shares of Supervalu, a grocery chain operator and food distribution company.

The stock was already very beaten down and trading at $22.45.

Unfortunately, it continued to head even lower and by October 20th it was at $14.90.

A lot of people would have simply sold by this point.

I actually bought another 500 shares.

I now had $17,058.92 invested in the stock… no small amount of money.

So you can imagine how gut wrenching it was to see the shares go even a bit LOWER still!

But I was convinced Supervalu was still worth far more than the market price so I held firm.

Here’s a chart that shows the action with my buy points circled…

Then, a couple positive developments started happening, including a new activist investor establishing a big stake and pushing for changes…

The stock started rebounding into the $20s…

And then last Thursday, July 26th, United Natural Foods offered to buy the entire company for roughly $32.50 a share – a 67% premium to the previous day’s closing price.

That’s the big spike you see right at the end of my chart.

End result?

I just booked a $12,740 profit in one year (actually much less on average, since more than half of my position was established when I doubled down in October).

This is hardly a fluke.

It’s actually the SECOND time I’ve seen this happen just with Supervalu.

The first time was back in 2012, when I recommended the stock for my Dad’s real-money $100,000 retirement portfolio… the one I was sharing with tens of thousands of readers.

Just like this recent time, the grocer’s stock had already been punished pretty severely but that didn’t stop it from going MUCH lower after my Dad (and probably many readers) had bought in.

As you can see from this chart below, at one point the shares were actually down more than 60% from Dad’s original entry point in the $7 range.

Chart 2

Wow, talk about a gut-wrenching decline!

Once again, most investors would have certainly dumped at some point, taken a big loss, and moved on.

But nothing about my investment thesis had changed.

And ultimately, I WAS vindicated on Supervalu that time, too, because the company started turning things around like I predicted.

First, it reached an agreement to sell some of its chains — including Albertsons, Acme, Shaw’s and Star Market — to a consortium of investors led by Cerberus Capital Management.

Then, its results started improving and the business returned to profitability.

Just take a look at this second chart, which is the same one as above with all the subsequent action added in.

You can see how quickly the stock started bouncing back to – and ultimately ABOVE – the original recommendation point.

My Dad ended up booking a solid 30.8% total return on the position once it hit my short-term price target.

And anyone who bought in at lower prices as I continued to pound the table on this stock could have more than TRIPLED their initial investment.

I could keep giving you more examples beyond Supervalu but here’s the bottom line…

If you’re a long-term investor and the fundamental reasons for owning a given position haven’t changed, I believe it makes sense to continue holding … especially if you’re receiving dividends along the way.

Moreover, the better you understand those fundamental reasons for owning a stock, the more confident you’ll be in staying put while the market goes against you.

You may even consider adding more shares on serious weakness.

Because as my latest Supervalu investment just proved, it’s entirely possible to see a 67% jump in one single day … rewarding anyone with guts, patience and conviction.

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, Rich Life Roadmap

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From:: Daily Reckoning

Trump Takes a Page From Nixon’s Playbook

By Nomi Prins

This post Trump Takes a Page From Nixon’s Playbook appeared first on Daily Reckoning.

Historically, presidents have refrained from publicly commenting on the Federal Reserve’s policy. This allows the Fed to maintain its veneer of independence.

However, it is clear that this White House is very different. President Trump is not one to keep his opinions quiet. Trump has publicly expressed frustration with the Fed, believing its rate hikes could negate the impact of the tax cuts impact growth.

During a recent interview with CNBC Squawk Box host, Joe Kernen, Trump said, “I’m not thrilled” about the rate hikes. Why not? The president continued:

Because we go up and every time you go up they want to raise rates again. I don’t really — I am not happy about it… I don’t like all of this work that we’re putting into the economy and then I see rates going up.

As further indication of how different Trump is from previous presidents, he added these remarks about commenting on Fed policy:

Now I’m just saying the same thing that I would have said as a private citizen. So somebody would say, ‘Oh, maybe you shouldn’t say that as president.’ I couldn’t care less what they say, because my views haven’t changed.

Stocks, markets and the dollar fell on his remarks. Sticking with tradition, the Fed did not comment on them. But here’s what Powell has on his mind…

As geopolitical tensions rise, trade wars mount, currency wars spawn and volatility continues to build, it’s clear the economy faces increasing pressure that could spiral into recession or worse.

Powell met with senior officials at the Fed recently to consider monetary policy in the wake of Trump’s comments (and though he didn’t say it, the markets).

After the interview aired, the White House issued a statement in which it “emphasized that Trump did not mean to influence the Fed’s decision-making process.”

But that’s just typical spin. While Powell wants to portray his independence, the fact remains he was still appointed by Trump. That’s political influence in the making.

President Trump’s indirect pressuring of the Federal Reserve not to raise rates is not unprecedented. He took a page out of another Republican president’s playbook – Richard Nixon. When the Fed began raising interest rates during Nixon’s term, he also raised objections, although not in public like the current president.

Back then, the U.S. had been in the throes of a recession in the beginning of the 1970s. The Fed had cut rates by half to stimulate the economy. There was no quantitative easing (QE) program during that period. That’s because it wasn’t a banking crisis preceding that recession, so the level of Fed support wasn’t anywhere near as expansive as it has been this past decade.

Fed Chairman Arthur Burns believed that “awful problems” could occur if the Fed didn’t raise rates in tandem with the growing economy. On a somewhat lesser scale, that’s the position of Jerome Powell today.

He wants to head off what he perceives as inflationary pressures before they jeopardize the current recovery. He doesn’t want to play catch-up and have to drastically reverse course down the road.

But Nixon didn’t want to risk cooling it off before his 1972 election. As White House audio tapes recorded, Nixon told Burns on March 19, 1971, “We’ve really got to think of goosing it… late summer and fall of this year and next year.”

Subsequent conversations led to a reversal of rate hikes during the fall of 1971. But importantly, what President Trump should know is that Nixon’s intervention into the Fed’s policies didn’t end well.

Burns’ reversal inevitably led to one of the highest inflationary periods in U.S. history. And of course the term “stagflation” entered the language during the ‘70s, with their high inflation and limited growth. I remember the gas lines very well.

But the fact is, we live in different times now.

America was just beginning to move off the gold standard in those days, so the spending restraints it engendered still exerted force. And even with the Vietnam War and the recently initiated Great Society to pay for, the U.S. debt-to-GDP ratio was only about 35% in 1971. It’s now about 105%. The last vestiges of the gold standard are long gone.

Most importantly, it was a time before central banks had so much influence over markets. Central banks like the Fed were fixated on macroeconomic stability, not the performance of the stock market.

We live in a completely new monetary and fiscal world today, especially after the 2008 financial crisis. The Fed’s balance book went from about $800 billion pre-crisis to a gargantuan $4.5 trillion. That type of move was completely unprecedented.

Now the Fed is raising interest rates and reducing its balance sheet in order to return to “normal.”

So far, the Fed has raised rates seven times since December 2015. Under Jerome Powell, it has raised rates twice.

Now, the Fed forecasts another two rate hikes by the end of the year, once in September and then December. While it’s likely the second one is much lower than the first, the fact is that both are in play.

Markets are currently wondering if there will be a “Powell put.” During Alan Greenspan’s reign at the Federal Reserve, a phenomenon dubbed the “Greenspan put” prevailed.

Wall Street’s expectation was that if the stock market wobbled, the Fed would save the day by cutting rates (creating money and the need for speculators to then get returns from the stock rather than the bond market).

The Fed has largely played by a similar “put” playbook for the past decade, with low rates and a $4.5 trillion book of assets courtesy of QE. The mainstream media is slow to recognize this. Only now are they beginning to wonder whether the Fed will do what’s needed to lift the markets when it becomes necessary.

But, as a recent Bloomberg suggests, Powell is facing the same pressure to have his own put, “except this time it would be tied to the bond market.” Now, policy makers are increasingly concerned about …read more

From:: Daily Reckoning

Why Markets Should Beware the Dog Days of August

By Brian Maher

This post Why Markets Should Beware the Dog Days of August appeared first on Daily Reckoning.

Today the calendar rolled to August…

The “dog star” Sirius is prominent in the predawn sky. And the canine days of summer are upon us.

In The Iliad, Homer depicts the rise of Sirius as an omen of war… disaster… “a sign of evil that brings on the great fever for unfortunate mortals.”

Ancient Rome associated the dog star with catastrophe.

The great fire of Rome erupted in A.D. 64 — on the very day Sirius rose.

What do the dog days of summer portend for markets in A.D. 2018?

Today we direct our gaze heavenward… and hunt for signs.

At once we detect an ill star…

Stretching back to 1950, we discover the Dow Jones has fallen an average 0.2% in August.

And since 1987 — that annus horribilis — the index has turned in an average August loss of 1.1%.

Thus August has been the Dow’s worst month for the past 30 years, says Jeff Hirsch, editor of the Stock Trader’s Almanac.

But what about the S&P?

Another worrisome portent falls into view…

Since 1945, the S&P has also lost 0.2% in August — on average.

And when the S&P is negative in August, it is negative in grand style…

Since 1980, when the index is negative for August, it drops an average 4.5% — its steepest decline for any month of the twelve.

That according to data from LPL Financial.

The S&P, incidentally, began August in a shallow hole — down three points today.

Come now to the Nasdaq…

Does August curse the Nasdaq as well?

The record is plus and minus — for the past 45 years the index has eked an average 0.1% August gain.

August remains, nonetheless, the Nasdaq’s second-worst month on the calendar.

Only September — next month — rates worse.

In summary:

August is often a lean month for the stock market.

But what’s this we see — another sinister omen hung upon the stars?

2018 happens to be a year of midterm elections.

And history is especially unkind to August in years of midterm elections.

All three major indexes suffer measurably worse than in normal years.


The picture turns decisively more negative in years in which there are midterm elections, however. In such Augusts, the Nasdaq typically falls 1.8%, a far steeper decline than is seen in the other benchmarks. The Dow typically falls 0.7% in midterm Augusts (compared with a 0.2% drop otherwise) while the S&P is down 0.4% (compared with a negative 0.1% move).

Why do the stars frown most upon these Augusts?

Goldman Sachs fastens upon the answer:

November midterms represent “yet another source of policy risk and volatility.”

Markets average 12% volatility in average years, Goldman finds.

But in midterm election years… that figure swells to 15%.

And this year’s midterm elections deviate far from custom…

Has the opposition party ever been so hot for the scalp of a sitting president?

If Democrats retake the House in November, depend on it:

They will proceed against Trump with every device of the political arts, aimed above the belt and below.

Investigations. Subpoenas. Leaks. Hearings. Hearings into hearings.

“What you’ll have is absolute gridlock,” bemoans House Speaker Paul Ryan, adding:

“You’ll have subpoenas, you’ll have just the system shutting down.”

“Subpoenas would be flying from Capitol Hill toward the White House as fast as they can print them out,” affirms Democratic strategist Brad Bannon.

“Democrats would put the pedal to the metal on the Russian investigation,” he adds — with understatement.

Then we come to impeachment itself…

Maxine Waters has claimed that 70% of Democrats wish to impeach President Trump.

Impeachment proceedings begin in the House. The possibility of impeachment, therefore, cannot be dismissed if Democrats seize the chamber.

But the House can only initiate impeachment. The Senate votes to convict.

If Republicans maintain Senate control this election, we can only conclude Trump’s position is secure.

What do the oddsmakers currently prognosticate?

Democrats stand a roughly 70% chance of winning the House. But a less than 40% chance of collaring the Senate.

Of course, 40% is not 30%… is not 20%… is not 10%… is far from 0%.

The upcoming show promises to a circus in a dozen rings, incomparably grand theater.

But November is three months distant.

In the meantime…

Let us hope markets can withstand the dog days of August, for their history is cruel…


Brian Maher
Managing editor, The Daily Reckoning

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From:: Daily Reckoning

How to Stay at Any Hotel in the World… for Free

By Nilus Mattive

Nilus Mattive

This post How to Stay at Any Hotel in the World… for Free appeared first on Daily Reckoning.

Before I show you how to get a free night stay at almost any hotel in the world, here’s what not to do…

Don’t: Email a hotel manager telling them you’re a blogger, social media influencer, or any type of wannabe star and ask for a free room in exchange for exposure.

This may have worked a few years ago, but a lot of hotels have had enough dealing with these D-list celebrities. Some luxury hotels going as far as banning them altogether.

Here’s an email from a hotel owner in Dublin in response to a request from a 22-year old Instagram “influencer”:

Dear Social Influencer (I know your name but apparently it’s not important to use names),

Thank you for your email looking for free accommodation in return for exposure. It takes a lot of balls to send an email like that, if not much self-respect and dignity.

If I let you stay here in return for a feature in a video, who is going to pay the staff who look after you? Who is going to pay the housekeepers who clean your room?

The waiters who serve you breakfast? The receptionist who checks you in? Who is going to pay for the light and heat you use during your stay?

Maybe I should tell my staff they will be featured in your video in lieu of receiving payment for work carried out while you’re in residence?

P.S. The answer is no.

A bit rough, but comical all the same.

Now that we’ve covered what not to do, let’s get down to brass tacks. Here are five ways to stay at just about any hotel in the world for free this year…

1. Type “(Hotel Chain Name) Credit Card” into Google

Pretty much every major mid-upper level hotel chain around the world now offers credit cards with enough points for at least one free night every year.

So long as you meet the minimum spending requirements or pay the renewal fee, you’ll get a free night. Not to mention you’ll be earning points throughout the year that can go toward multiple free nights.

Hotel credit cards are a great way to turn your everyday spending into cheap travel accommodation. Just make sure you read the fine print to know what is required to get the perks you desire. A few chains that offer credit cards with annual freebies: Marriott, Hyatt, IHG, SPG and Hilton are worth checking out. Here’s a good resource explaining your different options.

2. Hate Points? That’s O.K.

If complicated points programs turn you off, don’t worry because you can still enjoy free accommodations. and other third-party booking sites offer incentives when you book through them instead of booking directly through a hotel’s website.

Right now, has an offer where for every 10 nights you book, you’ll get one free night worth the average cost of the 10 nights you booked. The best part about this deal is it covers any hotel you find on, no blackout dates or other stipulations.

3. SLH Refer a Friend

What fun is traveling if you don’t get to tell your friends about it?

Another way to earn yourself a free night stay is by referring friends and family. Small Luxury Hotels (SLH) is a boutique chain of hotels around the world that offers a loyalty program where you can refer a friend, and if they book one night worth at least $200, you receive a free night at any SLH Hotel worldwide.

SLH has hotels all around the world, you could stay at the Viceroy in New York, Claris in Barcelona, or Scarlet in the U.K. to name a few. And the best part, you can do this multiple times!

4. Wanting to Travel to Europe, Africa, or the Middle East? Now’s the Time to Do It

If you’ve always wanted to visit Cape Town or Dubai, now’s the time to go.

Starwood Hotels (SPG) has an offer with Mastercard that gets you two free nights on any booking of four nights or more. Or, you can simply get one free night, if you book two nights.

You could be staying at the Westin in Cape Town for free so long as you have a Mastercard or know someone who does and wants to travel with you. If you’re planning on traveling to Africa, the Middle East, or Europe in the near future, this is one of the best deals you’ll find.

5. Earn up to $40 for Every Friend that Tries Airbnb

I know Airbnb is not necessarily a “hotel” per say. However, you can find some pretty nice digs at a fraction of the cost of a commercial hotel chain.

But what about free?

Airbnb is still relatively new to a lot people, so in order to get more people using the service they’re offering some sweet referral bonuses. If you recommend Airbnb to a friend or family member and they sign up and complete a stay, you’ll get between $25-40 per person.

Have both your in-laws and a friend stay at an Airbnb during their next visit and you’ve just made $120 in credit, which can be put toward a free night stay at any Airbnb of your choosing.

Sign up on the Airbnb website and go to “earn credit” for more information about the offer. There are plenty of ways you can save on travel.

These are just a few you can take advantage of this summer, enjoy!

To a richer life,

Nilus Mattive
Editor, Rich Life Roadmap

The post How to Stay at Any Hotel in the World… for Free appeared first on Daily Reckoning.

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From:: Daily Reckoning

Investors Have Fallen Into a False Sense of Security

By James Rickards

Three faces of volatility

This post Investors Have Fallen Into a False Sense of Security appeared first on Daily Reckoning.

In January 2018, two significant market events occurred nearly simultaneously. Major U.S. stock market indexes peaked and volatility indexes extended one of their longest streaks of low volatility in history. Investors were happy, complacency ruled the day and all was right with the world.

Then markets were turned upside down in a matter of days. Major stock market indexes fell over 11%, a technical correction, from Feb. 2–8, 2018, just five trading days. The CBOE Volatility Index, commonly known as the “VIX,” surged from 14.51 to 49.21 in an even shorter period from Feb. 2–6.

The last time the VIX has been at those levels was late August 2015 in the aftermath of the Chinese shock devaluation of the yuan when U.S. stocks also fell 11% in two weeks.

Investors were suddenly frightened and there was nowhere to hide from the storm.

Analysts blamed a monthly employment report released by the Labor Department on Feb. 2 for the debacle. The report showed that wage gains were accelerating. This led investors to increase the odds that the Federal Reserve would raise rates in March and June (they did) to fend off inflation that might arise from the wage gains.

The rising interest rates were said to be bad for stocks because of rising corporate interest expense and because fixed-income instruments compete with stocks for investor dollars.

Wall Street loves a good story, and the “rising wages” story seemed to fit the facts and explain that downturn. Yet the story was mostly nonsense.

Wages did rise somewhat, but the move was not extreme and should not have been unexpected. The Fed was already on track to raise interest rates several times in 2018 with or without that particular wage increase. Subsequent wage increases have been moderate.

The employment report story was popular at the time, but it had very little explanatory power as to why stocks suddenly tanked and volatility surged.

The fact is that stocks and volatility had both reached extreme levels and were already primed for sudden reversals. The specific catalyst almost doesn’t matter. What matters is the array of traders, all leaning over one side of the boat, suddenly running to the other side of the boat before the vessel capsizes.

The technical name for this kind of spontaneous crowd behavior is hypersynchronicity, but it’s just as helpful to think of it as a herd of wildebeest that suddenly stampede as one at the first scent of an approaching lion. The last one to run is mostly likely to be eaten alive.

Markets are once again primed for this kind of spontaneous crowd reaction. Except now there are far more catalysts than a random wage report, despite last week’s optimistic GDP report.

We all know what’s happened to Facebook since last Friday. But look at the potential trouble from geopolitical sources alone…

The U.S. has ended its nuclear deal with Iran and has implemented extreme sanctions designed to sink the Iranian economy and force regime change through a popular uprising. Iran has threatened to resume its nuclear weapons development program in response. Both Israel and the U.S. have warned that any resumption of Iran’s nuclear weapons program could lead to a military attack.

Three faces of volatility, from left to right: Ayatollah Ali Khamenei, the spiritual and de facto political leader of Iran; Nicolás Maduro, the president of Venezuela; and Kim Jong Un, the supreme leader of North Korea. Iran and North Korea may soon be at war with the U.S. depending on the outcome of negotiations. Venezuela is approaching the status of a failed state and may necessitate U.S. military intervention.

Venezuela, lsed by the corrupt dictator Nicolás Maduro, has already collapsed economically and is now approaching the level of a failed state. Inflation exceeds 40,000% and the people have no food. Its inflation rate has now exceeded the hyperinflation of Weimar Germany.

Social unrest, civil war or a revolution are all possible outcomes. If infrastructure and political dysfunction reach the point that oil exports cannot continue, the U.S. may have to intervene militarily on both humanitarian and economic grounds.

North Korea and the U.S. have pursued on-again, off-again negotiations aimed at denuclearizing the Korean Peninsula. While there have been encouraging signs, the most likely outcome continues to be that North Korean leader Kim Jong Un is playing for time and dealing in bad faith. The U.S. may yet have to resort to military force there to negate an existential threat.

This litany of flash points goes on to include Iranian-backed attacks on Saudi Arabia and Israel, a civil war in Syria, confrontation in the South China Sea and Russian intervention in eastern Ukraine. These traditional geopolitical fault lines are in addition to cyber threats, critical infrastructure collapses and natural disasters from Kilauea to the Congo.

Investors have a tendency to dismiss these threats, either because they have persisted for a long time in many instances without catastrophic results, or because of a belief that somehow the crises will resolve themselves or be brought in for a soft landing by policymakers and politicians.

These beliefs are good examples of well-known cognitive biases such as anchoring, confirmation bias and selective perception. Analysis tells us that there is little basis for complacency. Yet the VIX is back near all-time lows as shown in Chart 1 below.

VIX Chart

Chart 1

Even if the probability of any one event blowing up is low, when you have a long list of volatile events, the probability of at least one blowing up approaches 100%.

With this litany of crises in mind, each ready to erupt into market turmoil, what are my predictive analytic models saying about the prospects for an increase in measures of market volatility in the months ahead?

They’re saying that investor complacency is overdone and market volatility is set to return with a vengeance. Even with the Facebook blowup and trouble in the tech space, VIX is just above 13.

Changes in VIX and other measures of market volatility do not occur in a smooth, …read more

From:: Daily Reckoning

“The Selling Has Just Begun”

By Brian Maher

This post “The Selling Has Just Begun” appeared first on Daily Reckoning.

“The selling has just begun,” panics Morgan Stanley, “and this correction will be the biggest since the one we experienced in February.”

“The most important trade of the past decade is now reversing,” shrieks Charlie McElligott, head of Nomura’s cross-asset strategy.

Since last Friday the S&P technology sector lost $350 billion of artificial wealth… swept away to the Land of Wind and Dust, the graveyard of illusions.

Facebook has absorbed the heartiest slating of the bunch.

Twitter, with disappointing second-quarter earnings of its own, follows.

If you wish to understand the outsized market influence of technology stocks, consider:

The S&P’s five largest companies — Apple, Amazon, Alphabet (Google), Microsoft and Facebook — boast a combined market cap exceeding $4 trillion.

These five technology stocks thus equal the market cap of the index’s bottom 282 companies… combined.

The S&P is up 5% year to date.

But were you aware that 73% of S&P stocks are down at least 5% this year? Or that 49% are down 10% or more?

It is true — our agents confirm it.

Ten stocks alone account for 100% of the S&P’s yearly gains — and six of these wagon-pullers have been technology stocks.

Rarely before, we conclude, have so many investors… owed so much… to so few stocks.

But what if these market supporters crack under the strain and throw off the burden of leadership?

Will anyone carry the standard forward?

No, suggests Goldman Sachs:

“Narrow bull markets eventually lead to large drawdowns.”

Of chief concern to many analysts is the strategy of “passive investing.”

Passive, because it rises or falls with the prevailing tide.

Technology stocks like Facebook have lifted markets on a flowing tide of momentum.

Much of Wall Street has poured into these stocks… sat back on its oars… and let the current take markets to record highs.

But the danger is this:

When the tide recedes… it recedes.

And the same handful of stocks can wash the market out to sea, quick as a wink.

Panic selling begets panic selling, and where it ends is an awful mystery.

Jim Rickards explains:

What matters is the array of traders, all leaning over one side of the boat, suddenly running to the other side of the boat before the vessel capsizes.

The technical name for this kind of spontaneous crowd behavior is hypersynchronicity, but it’s just as helpful to think of it as a herd of wildebeest that suddenly stampede as one at the first scent of an approaching lion. The last one to run is mostly likely to be eaten alive.

Or as analysts Lance Roberts and Michael Lebowitz of Real Inv​estment Adv​ice style it:

When the herding into ETFs begins to reverse, it will not be a slow and methodical process but rather a stampede with little regard to price, valuation or fundamental measures.

Importantly, as prices decline it will trigger margin calls, which will induce more indiscriminate selling… As investors are forced to dump positions… the lack of buyers will form a vacuum causing rapid price declines which leave investors helpless on the sidelines watching years of capital appreciation vanish in moments.

Roberts and Lebowitz remind that investors lost 29% of their capital over a three-week span in 2008 — and 44% over three months.

This is what happens during a margin liquidation event,” they conclude.

“It is fast, furious and without remorse.”

We can of course provide no timeline for the described phenomenon.

Nor, for the matter of that, can anyone else.

Bu we have argued against a general catastrophe this year.

We believe the ultimate reckoning may wait until next year… or the year following.


Because we first expect a “melt-up” — that final manic, incandescent phase bull markets enter before the inevitable melt-down.

And these conditions do not obtain today.

We admit the possibility of an impending correction as Morgan Stanley predicts — but why, we wonder, can markets only “correct” lower?

If a 10% market fall is a correction, is a 10% increase an incorrection?

And if the S&P was correct when it plunged 10% in February… must we conclude any subsequent rise has been incorrect?

Questions to ponder of a lazy midsummer day…

We may soon have our answers.

Regardless, more questions will follow in the days ahead… and some may bring unsatisfying answers.

In the words of former fund manager Richard Breslow…

“This isn’t shaping up to be an old-fashioned quiet August.”


Brian Maher
Managing editor, The Daily Reckoning

The post “The Selling Has Just Begun” appeared first on Daily Reckoning.

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From:: Daily Reckoning

A 100%-Accurate Indicator Is Flashing: Ignore It at Your Own Peril

By Nilus Mattive

Chart 1

This post A 100%-Accurate Indicator Is Flashing: Ignore It at Your Own Peril appeared first on Daily Reckoning.

Very few mainstream investors realize this, but there’s an indicator that has correctly predicted a recession every time it’s gone off going back to the 1960s – seven times in total.

And right now, this indicator is flashing bright yellow.

Based on history, if it turns red we will see a painful economic contraction by next year.

So today, I want to give you a plain-English explanation of this critical measure called the yield curve.

In general terms, a yield curve shows how various bonds’ interest rates compare to each other.

But when most people talk about the yield curve, they are specifically referring to the rates offered by Treasuries with different maturities.

To get an idea of how this works, picture a continuum with very short-term Treasuries at one end and 30-year bonds at the other. In between is everything else, such as two-year notes and 10-year notes.

As you’d imagine, the standard shape has higher rates the farther you go out on the curve.

After all, the longer an investor locks up money, the more risk he’s taking… and the higher his annual rate of compensation should be.

Here’s a pretty standard pattern from five years ago, during the summer of 2013…

As shown, investors were getting almost nothing for holding very short-term bills and substantially more the farther out on the yield curve they went.

This is an economic green light – the market’s way of saying, “Everything looks pretty good. We expect decent economic growth, stable interest rates, and moderate inflation.”

The standard difference between a three-month note and a 20-year Treasury bond has historically been about two percentage points, so the curve above was actually a bit steeper than average – with 20-year bonds offering 50% more of a spread than they usually do.

But the basic idea was that the bond market saw blue skies ahead… and we now know it was correct about that.

Of course, here’s what the same yield curve looked like back in 2008…

Chart 2

As you can see, the overall shape is much flatter.

In fact, investors who tied their money up for just one month in 2008 were getting a 3.31% yield… while investors who tied their money up for 30 YEARS were getting just 4.35%.

That’s a meager one percentage point in additional interest for locking up money three decades longer!

This shape amounts to market uncertainty about the future, which makes perfect sense when you think about what was happening during the financial crisis.

And we have a similarly flat yield curve right now.

You can get official rates for every point on the curve right here via the Treasury’s website.

By doing so, you’d see that…

A three-month bill was recently yielding 2.00%…

A 3-year note was paying out 2.76%…

A 10-year bond was paying only slightly more at 2.96%…

A 20-year bond was almost the same at 3.03%…

And locking up your money for a full 30 years would get 3.09%.

So we’re talking about a total spread of less than .4% between a 3-year bill and a 20-year bond, which you now know is a fraction of the normal two percentage point spread.

That means we’re very much in “yellow” territory right now.

Should shorter-term rates go higher than longer-term ones, we’d be seeing a situation that led to a recession seven out of seven times since the 1960s.

The last time this happened, in November of 2006, here’s what it looked like…

Chart 3

Depicted above, it’s clear investors could actually get HIGHER interest rates by buying shorter-term bonds.

This is known as an “inverted yield curve,” and it means the market expects turbulence ahead.

In many respects, it actually becomes a self-fulfilling prophesy.


Just think about the U.S. financial system for a minute.

The general way things work is that banks and other lenders borrow at shorter-term rates and loan that money back out at longer-term rates, pocketing the difference.

If everyone is making more money by holding cash rather than lending it, the engine for economic growth starts to sputter!

That’s a very simplified explanation, of course.

And we could still see the curve start heading back to a more normal shape… especially given Donald Trump’s recent calls for the Fed to slow its roll on future rate hikes.

However, this is something that bears watching over the next few months because it has big implications for almost all the investments in your portfolio.

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, Rich Life Roadmap

The post A 100%-Accurate Indicator Is Flashing: Ignore It at Your Own Peril appeared first on Daily Reckoning.

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From:: Daily Reckoning