A Simple Tool that Uncovers New Investments

Nilus Mattive

This post A Simple Tool that Uncovers New Investments appeared first on Daily Reckoning.

Want to know one of the best ways to minimize the dangers of market volatility and build long-term wealth?

Consistently putting more money to work.

One way to do that is through dollar-cost averaging, a strategy that invests a set amount of money into the same stocks or funds on a regular schedule.

Another (slightly less scientific) way?

Buying a new investment — or investments — every week, every month, or at least every so often.

Of course, the real challenge is finding new opportunities… especially when prices have generally run up like they have over the last several years.

Enter the stock screen, which allows you to quickly sort through thousands of stocks trading on U.S. exchanges, not to mention the many thousands of additional shares trading on foreign exchanges.

Stock screens are a great way to uncover new, off-the-radar investment ideas that meet whatever specific criteria you’re looking for.

These filtering programs draw on databases of stored information, allowing you to search for investments based on predetermined factors. They’re both extremely useful and fun to play with.

In the old days, it took a proprietary system and either lots of tedious labor or a very powerful computer to perform a single stock screen.

Now, things are a lot different!

Sure, investment professionals still have access to programs and software that give them more information than most. But the Internet has brought screening to the masses, and many of the online tools are free as well as powerful.

For example, Finviz has a very good screener located here. Zacks has another good one here. Many brokerages also provide proprietary screening tools to their customers, too.

The more important part is knowing how to harness the power of these tools once you’ve found them.

Some sites offer a number of predefined searches to help get you started. But in my experience, the most interesting (and relevant) results are produced when you select the criteria yourself.

Let’s go through some basic items you might want to look for.

For starters, here are four fundamental items:

#1. A reasonable valuation — There may be no more important key to successful investing than buying at the right price. And while there are plenty of ways to define “value” there’s no simpler or more readily available measure than the price-to-earnings (P/E) ratio. The lower the number, the less money you’re paying for every penny the company earns.

#2. Great cash flow — Companies that bring in loads of cash are attractive. Simple, right? I often use free cash flow, which is the amount of money a company has after it pays all its normal costs of doing business (salaries, bills, capital expenditures, taxes, etc.).

#3. Low debt — You can use a company’s debt-to-equity ratio to tell you how much long-term debt it has. The higher the percentage, the more debt the company has.

If you’re very conservative, you can search for companies that have a total debt to total equity ratio under 20%. Heck, there are some companies out there that actually have ratios of zero, indicating no long-term debt at all!

#4. Solid profit margins — Simply put, this tells you how much of a company’s revenue becomes profit. It’s expressed in percentage terms… the bigger the number, the better!

If you’re after higher-growth companies, you might include — or substitute — other criteria.

For example, you could screen for firms that have posted five straight years of double-digit sales gains or that have doubled their profits in the last year.

And since I’m such a huge fan of dividends, I can’t help but mention three of my favorite criteria in that area —

above-average yields (as measured by a major index such as the S&P 500),

adequate dividend coverage from cash flows,

and strong dividend growth over a five-year period.

These are all good starting points, but I recommend adding additional qualifiers to get even more targeted lists.

For example, I often search within a particular sector, industry, company size, or region.

I then use those lists as a starting point for further research – digging deeper into the individual companies themselves. That means looking at everything from recent business developments to various stock charts.

My point is that stock screens shouldn’t be the sole step in your process. But they’re a great way to get interesting ideas with the kind of characteristics you want.

I encourage you to experiment and see what you discover on your own.

You can find investments that have strong momentum by specifying share prices that are at, or near, new highs.

Or, if you want to see what companies have confident managers, you can screen for large amounts of insider buying.

The possibilities are endless… the searches cost nothing… and the resulting information can prove very profitable.

To a richer life,

Nilus Mattive
Editor, The Rich Life Roadmap

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Live From Omaha: Buffett’s Big 3 Investment Insights

Davis Ruzicka

This post Live From Omaha: Buffett’s Big 3 Investment Insights appeared first on Daily Reckoning.

This week is all about the Oracle of Omaha.

Over the weekend, Berkshire Hathaway held their annual shareholder meeting and The Daily Edge was in attendance to get the details.

Although the main attraction was a six hour Q&A session with Warren Buffett and Charlie Munger, what really caught my eye were the subtle insights into Berkshire’s stock picking strategies that were shared throughout the weekend.

Keep in mind, Warren and Charlie have been notoriously reserved with the intricacies of their strategy in the past, which is why today I’d like to lay out three insights that we know they employ, and explain why they’re great for retail investors like you…

Berkshire Strategy #1: Diversify

This was my first time in attendance at Berkshire Hathaway’s annual shareholder meeting. And to be honest, I never quite understood the true brilliance of Warren Buffett until I walked through the convention center doors on Friday afternoon.

This was where vendors from Berkshire’s largest subsidiaries set up exhibits for shareholders to learn about the many companies and even purchase products at discounted prices.

The diversity was blinding.

The first exhibit on the main floor was Forest River RV. Two brand-new RVs were parked and available to tour.

Next was Clayton Homes, where Buffett’s staple paper toss competition takes place. And then Geico and World Book, followed by Brooks Footwear, Fruit of the Loom, NetJets, See’s Candy and dozens more.

Berkshire’s portfolio is incredibly diverse which allows them to spread risk still without sacrificing returns. And you should too!

We here at The Daily Edge recommend that you don’t let any single investment account for more than 5% of your total portfolio value.

Berkshire Strategy #2: Invest In What You Know

Did you notice how basic the companies I mentioned above were?

A candy company, a shoe manufacturer, an underwear maker, an insurance giant and a publisher. Buffett never invests outside his “circle of competence.”

This is arguably Buffett’s most important strategy that not enough investors follow.

To best sum this up, let me take a page from Peter Lynch’s book One Up On Wall Street.

In reference to his market research for Dunkin Donuts, Peter states, “Among amateur investors, for some reason it’s not considered sophisticated practice to equate driving around town eating donuts with the initial phase of an investigation into equities. People seem more comfortable investing in something about which they are entirely ignorant… Shun the enterprise that can be observed, and seek out the one that manufactures an incomprehensible product.”

In short, stop investing in semiconductors if you don’t know an APU from a CPU, and stop buying small-cap biotechs off a “hot tip” if you don’t know the difference between Phase 2 and Phase 3 clinical trials.

Believe it or not, these basic companies that Berkshire invests in are just as profitable as the high-flying biotech and tech sectors — hence Mr. Buffett’s current net worth of $85 billion…

Berkshire Strategy #3: Moats Are Not Lame

Moats were a popular topic in Omaha this weekend after Tesla’s Elon Musk controversially stated that “Moats are lame” on a recent Tesla conference call.

As expected, when asked about the topic, Buffett took the opposite side of the argument. After all, one of Buffett’s stickiest investment nuggets has been his advice to invest in businesses “that have wide, sustainable moats around them.”

But what does he mean by this?

He’s referring to the buffer that companies employ to help them maintain a competitive edge.

They come in many forms. On Saturday, Mr. Buffett gave two examples of strong moats currently in Berkshire’s portfolio that are not easily susceptible to technological innovation.

The first was insurance giant Geico who benefits from economies of scale, brand recognition and most importantly low prices.

He then followed up this example with See’s Candy.

“I don’t think he’d want to take us on in candy,” is the line Buffett used on Saturday. That’s because See’s has a large, loyal customer base, especially on the West Coast, that can’t be easily stolen by rival candy makers.

So next time you’re looking to put money to work, think about the three strategies that helped Buffett make billions before you pull the trigger — spread it out, keep it simple and buy the buffers.

Here’s to keeping your edge,

Davis Ruzicka
Managing Editor, The Daily Edge
EdgeFeedback@AgoraFinancial.com

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Central Banks: The Great Experiment Has Failed

This post Central Banks: The Great Experiment Has Failed appeared first on Daily Reckoning.

My latest book, Collusion: How Central Bankers Rigged the World, is about the leading central banks and their incestuous relationships.

The book dives into how central banks rigged the cost of money and the state of the markets, and ultimately created more inequality and instability as a result. They did all of this in order to subsidize private banks at the expense of people everywhere.

The book reveals the people in charge of these strategies, their elite gatherings and public and private communications. It uncovers how their policies rerouted economies, geopolitics, trade wars and elections.

Central banks have several functions from an official standpoint. The first is to regulate the smooth and orderly operation of private banks or public banks within a particular country or region (the ECB is responsible for many countries in Europe).

The other function they are tasked with is setting interest rates (the cost of borrowing money) so that there’s adequate economic balance between full employment and a select inflation rate.

The idea is that if the cost of money is cheap enough, private banks will lend to the general population and businesses. The ultimate goal is that the money can be used to expand enterprise, hire people and develop a stronger economy.

In an environment where the cost of money is too cheap, it could cause inflation. When inflation rises, central banks are expected to lower the cost of money in order to keep it under wraps.

While those basic functions should be relatively simple, what has unfolded is anything but.

Since the financial crisis, the Fed has been unleashed. The U.S. central bank has quite literally fabricated nearly $4.5 trillion in funds to buy bonds (assets) from the major private banks. It should be noted that those private banking institutions are members of the Fed system.

The Fed then provides that money to the banks and the institution can then hold the funds in reserve, or choose to sell their Treasury or mortgage bonds back to the Fed.

The reality is, central banks have provided money as cheaply as possible to banks in order to keep the private banking system operating.

When looking at the world since the financial crisis, it was clear that there was a “pivot” between regions. Different countries, and their respective central banks, were either forced to participate in, or caught up in, in the collusion started by the Fed.

The Fed’s playbook was then deployed across the world by other central banks.

In particular, the G7 collectively fabricated $21 trillion worth of money. They took the liberty then to buy government bonds, corporate bonds, mortgage bonds and, in the case of Japan, ETFs (exchange-traded funds). Other banks, like Switzerland, went so far as to create money and directly purchase stocks.

What this meant was that an external supply of money was injected into the world’s markets, in a nearly limitless amount. These actions pushed markets higher, and the bond markets were inflated with this excess money, causing a new round of debt bubbles.

These “conjured money” efforts did nothing to alter the fundamental values of companies. Companies could borrow money and buy their own stocks on the cheap, increasing the size of corporate debt and the level of the stock market to record highs.

Because money was so cheap and interest rates so low, no other investment opportunities could offer the same high returns, so speculators piled into the stock markets, further elevating their levels.

We have built up corporate debt and the markets to such great highs that the potential for a fall would be at an unprecedented level. To further complicate the matter, we have seen record buybacks occurring in the markets, but such landmark moves are not connected to organic growth and are detached from the foundation of any economy.

To visualize this, imagine pulling the rug out from under a table full of dishes. The higher you stack the dishes, the greater the crash when they fall.

Today’s global debt to GDP ratio stands at a record of 224%, according to the IMF’s latest calculations, amidst record debt of $164 trillion. Much of that debt was created because the central banks offered up money at such cheap levels to borrow.

To add to the complexity, certain central banks are starting to realize that reversing their course could present its own problems. If those cheap money rates do rise, and currencies like the dollar appreciate in value, developing countries that took on debts over the past decade will be cornered into a difficult position to repay it.

That debt trap itself could be a catalyst for economic shock and job losses. Such moves would likely begin in lesser-developed economies, and eventually grow outward.

There is also considerable reason to believe that any major banking collapse could have similar characteristics. Banks will either lock down the money they lent, or restrict the funds available for withdrawal to depositors, depending on the severity level of collapse.

Historically, governments have tried to respond to such conditions with government-led bailouts (augmented by corresponding central bank bailouts), but they are not usually enough to forestall stock markets crashing, pensions tanking and life-insurance funds being gutted.

Perhaps most alarming, we have seen virtually no real steps to reform the financial system.

Despite some cosmetic regulations to curtail certain risky behaviors, since the repeal of the Glass-Steagall Act in 1999, there is still no division between depositors’ funds and those used by banks for speculation.

The big banks continue to make massive trading bets, and corporations are still focused on buying back stock for short-term shareholder gains rather than reinvestment in their businesses.

Since the financial crisis, not a single bank CEO has been seriously punished, despite the frauds and felonies committed by the biggest U.S. banks. If a person steals a car, he gets charged with a felony and likely goes to prison. If a big bank, like Wells Fargo recently, scams millions of dollars of phony fees from its customers, its CEO gets a raise.

Meanwhile, the government regulator in charge gets …read more

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The Fed Has Robbed the Future

Personal Savings Rate

This post The Fed Has Robbed the Future appeared first on Daily Reckoning.

Has the future finally arrived?

The Federal Reserve intervened massively to cage the menace of depression after the 2008 financial crisis.

Quantitative easing, zero interest rates and the rest of the central banker’s emergency kit came to bear.

The heroics “worked.”

The crisis has passed. And the economy is presently in its 108th month of recovery.

Yes, the central bank may have saved the present with its emergency medicine.

But it may have robbed the future along the way…

Interest rates would have likely soared following the financial crisis.

Many businesses dependent on cheap debt and low interest rates would have died the death.

But the pain — though acute — would have likely been brief.

Sound business would have survived.

Higher interest rates would have encouraged savings… and gradually rebuilt the capital stock.

From this capital stock the green shoots of future growth would have come thrusting.

But it wasn’t to be.

Rather than letting the fire clear the underbrush… the Federal Reserve intervened to save the deadwood.

The Bank for International Settlements estimates that 10% of current American corporations are “zombies.”

That is, they could not endure without ultra-low interest rates and cheap financing.

How many future redwoods never came into being because these zombies robbed their nutrients?

Debt-based consumption and artificially low interest rates rob the future to gratify the present.

They bring tomorrow’s consumption ahead to today, that is.

And they rob the saplings that promise tomorrow’s growth.

Daily Reckoning contributor Charles Hugh Smith:

Debt has one primary dynamic: Borrowing money to consume something in the present brings forward consumption and income…

If we choose to consume now, we have less income to save for future consumption or investments. If we sacrifice consumption today, we have more money in the future for consumption or investing…

Those who brought their consumption forward can no longer add to present consumption, as their future income is already spoken for.

Despite the Fed’s lovely fling at the printing press, GDP has only grown an average 2.16% since 2010.

Meantime, Bloomberg informs us that labor productivity has averaged a mere 0.7% annual growth since 2011.

In contrast, labor productivity worked out an average 2.6% gain from 2000 to 2007.

And from World War II to the end of the 20th century… 3.2%.

Is this a picture of health?

Scott Brown, chief economist at Raymond James:

“There’s nothing to suggest a dramatic pickup in output per worker (hence, limited upside for GDP growth).”

Then we come to the financial shell games corporations play to goose short-term stock prices.

Twenty years ago, companies invested $4 to expand their businesses to every $1 on dividends and buybacks.

No longer.

Bloomberg reports that 56% of corporate profits are presently put in the service of buybacks.

And encouraged by tax cuts, this year’s pace of buybacks may be 50% greater than last year’s.

Apple, for example, has recently announced a vast $100 billion buyback to prop its shares.

Might the money be better spent on innovation?

Analyst Joseph Calhoun:

If companies do indeed start investing more, then maybe productivity will rise and we can break out of these doldrums for good. But right now, it just isn’t happening.

For the larger perspective, we turn once again to Mr. Smith:

The reality nobody dares acknowledge is that a “recovery” based not on improving productivity and innovation but on cheap credit and an artificially stimulated “wealth effect” was inherently weak, for the stimulus effectively hollowed out the productive economy in favor of the financialized, speculative economy and created perverse incentives to overborrow and overspend, stripping future demand to create the illusion of growth in a stagnating economy…

Meantime, years of nearly zero interest rates have reduced the U.S. personal saving rate to 3.1% — miles below the 8.2% average since 1959.

But growth is just around the next bend, the experts continually assure us.

Once this policy kicks in, once that condition is in place, all will be rosy.

But they’ve been caroling the same sweet tune for years… and it’s always turned sour in the end.

How many times have the wiseacres had to revise their GDP forecasts lower once fresh data rolled in?

Why should it change now… especially when history says the economic recovery is so “long in the tooth”?

“A funny thing happens when you borrow from the future to spend more today,” Smith concludes…

The future arrives, and we find the pool has been drained to serve the absurd policy goal of “no recession now, or ever again.”

Maybe the simple reality is this:

After years of borrowing from the future to spend more today, that future has finally arrived…

And the pool is empty.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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How to Join the Centenarian Club

Nilus Mattive

This post How to Join the Centenarian Club appeared first on Daily Reckoning.

The average life expectancy in industrial and developing countries for those born in 2017 is 82 years for females and 76 years for males.

Here in the U.S., it’s about 78 overall.

Yet according to a survey conducted by UBS Wealth Management, 53% of wealthy investors around the world expect to live at least 100 years, and they’re adjusting their financial holdings and estate plans accordingly.

The results varied among locations:

In Germany, 76% expected to become centenarians.

In Asian countries, about half thought they would reach that age.

And in the U.S., only 30% were that confident, although 49% want to live to at least 100.

Why such a dire outlook from Americans?

One of the main reasons people gave is that no one in their family lived that long.

But even if you don’t have the greatest genes, all is not lost. You still have a chance of joining the exclusive Centenarian Club…

The Danish Twin Study found that only 20% of our life expectancy is dictated by our genes. The other 80% is based on our lifestyle.

So to boost your odds, here are a few things you can do…

Guideline #1:
Quit damaging your cells

Consider this: Our bodies have more than 37 trillion cells.

These cells turn themselves over once every eight years. Each time your cells turn over, there’s some damage. That damage builds up exponentially.

The result: At 65, you’re aging 125 times faster than when you were 12.

And the worse you treat your body, the greater the damage.

It’s kind of like what happens with your car.

For the first several years, all is well. Then a few little things go wrong. When the miles pile up, say 150,000 or so, stuff starts breaking down more frequently.

But if you ignore signs, like the flashing red oil light on your dash, things can break down faster… maybe as early as 50,000 miles.

The same is true with your body, especially when it comes to what you put in.

Most of us love a thick, creamy milkshake.

But who would’ve thought that just one could be dangerous to your health?

A study by researchers at the Medical College of Georgia shows that downing just one high-fat milkshake made with whole milk, heavy whipping cream, and ice cream can turn your red blood cells into small, spiky barbs.

That can quickly destabilize plaque and cause a heart attack or stroke. From just one serving!

Imagine what eating unhealthy meals day after day does to your body.

Most nutritional experts recommend choosing fish over other types of meat.

Loading up on fruits, veggies, and whole grains.

They also recommend big doses of omega-3 and omega-9 fatty acids found in things like olive oil and nuts.

Of course, how much you eat is just as important (or even more important) than what you eat.

Using smaller plates will help you cut down on the number of calories consumed.

Instead of serving family style where you can continually pile up your plate, you can serve everyone and then put the food away.

Another thing: It takes 20-30 minutes to reach that full feeling.

So try the hara hachi bu diet. It’s a Confucian idea where you stop eating when your stomach is only 80% full.

Guideline #2:
Make your day better

Exercise is important. But it doesn’t have to be going to the gym or running marathons.

For example, Dr. Oz continually preaches the 10,000-steps-a-day routine as the ultimate workout plan.

Make your workout something – or many things – you enjoy. If you decide to walk, focus on your breathing and everything around you… the sounds, the light, the texture and smells of objects.

Or how about planting a garden? Think of the exercise you’ll get by squatting and standing up 20 or 30 times when tending your veggies.

Also, take a little time to chill out. We all need time for ourselves. Find a quiet spot for meditating, praying, drawing, listening to music or doing something like yoga for at least 15 minutes each day.

Guideline #3:
Be social

Researchers at Brigham Young University and the University of North Carolina at Chapel Hill studied data from around the world. They found that people with poor social connections had on average 50% higher odds of death than those with more robust social ties.

Yet we don’t have enough friends.

Fifteen years ago, the average American had three good friends. We’re down to one and half right now.

And data from the General Social Survey shows that, aside from social media, the number of us who have NO close friends has roughly tripled in recent decades.

Simply put, good friends are good for your health.

Studies have found that older adults with a rich social life are likely to live longer than their peers with fewer connections.

Adults with strong social support have a reduced risk of many health problems, including depression, high blood pressure, and an unhealthy body mass index (BMI).

And experiments found that people with more social connections were less likely to develop a cold when exposed to the virus than more isolated participants.

Moreover, if you socialize with people who enjoy going for a long walk on the beach or a bike ride at the park instead of watching TV or going to happy hour each night, you’re more likely to follow those same habits.

Guideline #4:
Define your ikigai

The two most dangerous years in our lives are:

1. The year we are born because of the infant mortality rate of 5.82 deaths per 1,000 births. And…

2. The year we retire.

In America we work most of our lives looking forward to retirement. Then when that day comes, life changes.

We may no longer feel needed.

The Harvard School of Public Health that found among the 5,422 individuals in a study, those who had retired were 40% more likely to have had a heart attack or stroke than those who were still working.

The increase was more pronounced during the first year after retirement, and leveled off after that.

What’s more, retirement was ranked 10th on the list of life’s most stressful events.

Of the wealthy investors who expect to live to 100, 77% said that working …read more

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Collusion: How Central Bankers Rigged the World

This post Collusion: How Central Bankers Rigged the World appeared first on Daily Reckoning.

The word “collusion” has come to be associated with Russia, Trump and the U.S. election.

But my new book, Collusion: How Central Bankers Rigged the World, is about something entirely different and much more global:

The collusion (or coordination) that the U.S. central bank (the Federal Reserve) forged with other major central banks to fabricate money in the wake of the 2008 financial crisis.

That money went to support the U.S. financial system at first, and it later spread to markets worldwide.

Collusion is about these powerful institutions’ relationships with each other.

The book dives into how central banks rigged markets and ultimately created more inequality and instability as a result.

They did all of this in order to subsidize private banks at the expense of everyday people everywhere.

The book reveals the people in charge of these strategies, their elite gatherings and public and private communications. It uncovers how their policies rerouted economies, geopolitics, trade wars and elections.

The great American novelist F. Scott Fitzgerald actually gets credit for my new book…

A decade after I left my final Wall Street post — as a managing director at Goldman Sachs — it was The Great Gatsby that carried me back in time and forward in geography.

Here’s how it went down.

After I’d written the book It Takes a Pillage about the 2008 financial crisis, I was exhausted. Not from writing, but from the sheer ignorance that the global elite had, and still have, of the banking, economic and financial conditions that led to disaster.

In 2004, my book Other People’s Money warned exactly how the 2008 financial crisis would unfold. Sadly, I was right. In the wake of the chaos, I needed a break.

Attempting to unplug, I wandered into my local library to just spend an afternoon perusing. Right there in the front, I saw something that caught my eye. A poster for “Great Gatsby month” activities around in the neighborhood including 1920s music, readings, specialty drinks in local bars and a discussion of the book at a senior citizens’ community club.

By returning to the glitz and drama of the 1920s, it hit me. The same banks that had perpetuated the crash of 1929 had perpetuated the crash of 2008!

The same families and their confidantes over decades had consistently set the stage for expansion and crisis — always to their benefit.

By researching the Big Six banks and their leaders that protected their interests at the expense of the rest of the population, I constructed the foundation of my nonfiction book, All the Presidents’ Bankers.

I traveled the U.S. from New York to California, from Kansas to Texas, digging into the presidential libraries for documents relegated to the coffins of history until I uncovered them.

They revealed key findings — that for the past century of American history, the same banks and their bankers exuded influence over presidents from both parties.

Then came a life-changing moment.

A year after the book came out, I got an email. It was from the Federal Reserve. Every year, the Federal Reserve, the IMF and the World Bank have an annual internal conference.

It’s where the most elite central bankers from around the globe gather. The Fed invited me to talk at the opening session. The session would take place in the very room in which the Fed convenes to set interest rates.

I was in shock.

To say the least, I hadn’t written very nice things about the Fed’s policies since the financial crisis. In very public channels, I had criticized their cheap-money and quantitative-easing policies as subsidies to the private banks that had crashed the system.

I had labeled their policies as rigging the markets and unhelpful to ordinary citizens and the Main Street economy.

I thought that the invitation might be a mistake. I was assured they knew exactly who I was. In fact, they wanted me to address the topic of why Wall Street banks weren’t helping Main Street and looked forward to hearing my views.

A few months later, I was sitting in the front of a room with central bankers from around the world, listening to Fed Chair Janet Yellen proclaim that the worst of the crisis and its causes were behind us.

The gloves were off. The first thing I asked the distinguished crowd was, “Do you want to know why big Wall Street banks aren’t helping Main Street as much as they could?” The room was silent.

I paused before answering for everyone, “Because you never required them to.”

When a bank is offered a pile of cheap money in bailouts and loans for dangerous behavior with no major consequences, and no stipulation that they engage the real economy, then why should they? What would you expect?

Something more interesting happened after my talk, some of the people at the Fed — not at the top, but in the ranks, told me it made sense. Many thanked me. Central banks’ leadership, from Lebanon to Thailand, thanked me for making it clear that the entire monetary system was controlled more than ever by the major central banks, with the Fed leading the way.

I realized right then and there, that the zero interest rate policies prevailing in the U.S., Europe, and Japan were part of a coordinated effort. They were trying to render the cost of money cheap everywhere so that banks and other financial players could thrive.

The move could also harm smaller, emerging market countries. The side effects would lead to asset bubbles that could pop and cause an even greater crisis the next time around.

I had to get back on the road. This time, it wasn’t to traverse the U.S., it was a global affair. My next expedition took me from Mexico to Brazil, China to Japan, Europe and the United Kingdom and back across the United States.

I spoke with central bankers that gave me intel about how this collusion happened in practice and behind the scenes. That information was verified multiple times over.

What might surprise you is that after confirming these findings with …read more

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Social Security Questions Answered

Nilus Mattive

This post Social Security Questions Answered appeared first on Daily Reckoning.

Over the years, I’ve gotten A LOT of questions about Social Security.

After all, the program is essentially an ongoing series of tax hikes, expansions, tweaks, benefit reductions, and other “fixes” that amount to a labyrinth of rules, regulations, and complicated decision trees.

Some of these topics also foster tons of emotion.

For example, a woman named Sue once told me:

“I personally believe that Social Security should return back to its original intent — that of providing for current workers who are contributing into the fund while they are working so they can pull money from it when they retire from working. I disagree that money should be denied to that worker’s aged spouse who did not work. Most working spouses work to not only provide for themselves in their old age, but also for their spouses. I WILL say that I believe that Social Security should NOT be used to pay benefits to the disabled — there should be other ways to meet their basic needs.”

This point of spousal benefits is certainly a hot-button topic.

In a previous article, I said all spouses should qualify for survivor benefits but should NOT receive their own separate checks while their contributing spouses are still living.

At some point, I will devote an entire piece to why I think this (including some eye-opening examples).

For now, let’s just say that providing extra spousal benefits to living couples with just one earner is both mathematically infeasible and grossly unfair.

A reader named Lynda agreed but had one other group of benefit payments that should be revoked before anything else:

“The first thing to go should be minor’s benefits for parents who are still living. Just because a man marries a much younger woman and produces a child, that child should not be eligible for Social Security benefits. What a travesty. And they wonder why the Social Security system is failing?”

Another reader named Sharon also said Washington should look at “Payments to legal immigrants who have never paid into the system (up to seven years — thanks LBJ).”

I agree that these are the kinds of areas that should be examined before anything else.

Or at the very least, THESE are the only types of situations that should be subjected to means testing.

Speaking of which, a reader named David told me:

“Nilus, you wrote that means testing for Social Security is a bad idea, to paraphrase. I would argue that, in fact, Social Security already has a means test built in by the sliding scale of how much of it is taxable. I am inclined to think this is a good idea. For context, I am 71, began collecting Social Security at age 66, and I am still working full time.”

Yes, that’s right. The taxation of benefits is essentially a form of means testing…

And I’m against it.

I know far too many retirees who are being subjected to this stealth benefit cut… and believe me when I tell you that they are not living in the lap of luxury.

They paid in via taxes for decades. They shouldn’t now see their distributions taxed on the way back out.

As I explained in a previous Roadmap article, the taxation of benefits is also a fairly modern idea, first enacted during changes made to the system back in 1983.

Back then, it was estimated that only 10% of retirees would be subject to the taxes.

Of course, the income levels established at that time have yet to change for inflation.

Neat trick, huh?

I think we can all agree that a couple earning $32,000 in retirement income in 2018 is hardly wealthy.

I think we all should also agree that because of the system’s vagaries, it’s perfectly reasonable to use Social Security’s Byzantine rules to their personal advantage.

So here are a few questions related to that…

“I will be 65 in June but not planning on retiring for a long time! I’m divorced and as I understand it, I can collect half of what my ex’s SS would be when I’m ready to collect. Just trying to understand everything.”

Were you married at least 10 years? If so, and you have not remarried, you qualify for benefits on your ex-husband’s record.

From there, yes, you have the choice to file for either your own benefit or half of his.

Moreover, unlike married people, you don’t have to wait for him to file for his own benefits. In fact, since you’re above age 62 you could file now if you wanted.

However, the smarter strategy sounds like it might be filing a restricted application. You would just have to be at least 66 to do that.

“I know laws changed a few years ago. What options remain on the table these days?”

Social Security is a complicated system so there’s no comprehensive way to answer this question in a short column.

One thing to remember, though, is that EVERY American still has the right to delay taking their own benefits until age 70.

While the value of doing so will vary substantially based on your own work record and lifespan, I’ve run some hypotheticals that show delaying benefits could easily amount to an extra $9,600 or more in future income for someone using the strategy.

How do I arrive at that figure?

Well, the Social Security Administration will raise your future payments for every MONTH that you delay.

Annually, that will amount to an 8% increase (plus any cost-of-living adjustments).

The math differs for every person; but consider someone who’s age 66 and has the choice of collecting $2,000 a month for the next 12 months or an additional $160 every month starting a year from now (i.e. the 8% annual increase for delaying benefits).

The $24,000 upfront seems like the better option at first. Especially since it takes 12½ YEARS of payments to make up for that missed $24,000.

Yet, according to government statistics, the average American at age 66 will live another 17½ years.

In other words, you stand a very good chance of collecting at least another five years of those extra $160-a-month payments… which …read more

From:: Daily Reckoning

Live From Nebraska: 5 Can’t-Miss Warren Buffett Insights

Davis Ruzicka

This post Live From Nebraska: 5 Can’t-Miss Warren Buffett Insights appeared first on Daily Reckoning.

This weekend I traveled to Omaha, Nebraska for Berkshire Hathaway’s annual shareholder meeting.

The event, known as the “Woodstock of Capitalism,” hosted an estimated 40,000 investors from all over the world who traveled to hear Warren Buffett and Charlie Munger speak on not only the current state of Berkshire Hathaway, but also on topics such as the broader stock market, the economy, politics and life.

And as a Daily Edge subscriber, you have the inside scoop on my most important takeaways.

No Word On A Successor

Although he is surely still mentally sharp now, Mr. Buffett turns 88 years old in August, which makes him the oldest CEO in the United States.

Naturally, this has made the question of who will succeed Warren Buffett as CEO a hot topic among investors and analysts.

However, this week those questions were not put to rest. Warren and Charlie deflected the question multiple times in favor of a more PC approach — reminding investors that Berkshire’s reputation speaks for itself, and that Berkshire will still be the first call for companies looking to make a deal, whether Warren and Charlie are at the helm or not.

As of now, the two likely candidates are Greg Abel and Ajit Jain — two recently promoted to vice chairmen that now oversee about half of Berkshire’s operating companies.

Warren Buffett Hates Gold

Did you know that $10,000 invested in the S&P 500 in 1942 would be worth approximately $51 million today?

While over the same time period, $10,000 worth of gold — which would have equaled roughly 300 ounces in 1942 — would be worth just $400,000.

This was the scenario Warren used to argue in favor of holding stocks — rather than gold — over the long-term.

“While the businesses were reinvesting in more plants and new inventions came along, you would look into your safety deposit box, and you’d have your 300 ounces of gold. And you would look at it, and you could fondle it, I mean, whatever you wanted to do with it. But it didn’t produce anything. It was never going to produce anything,” Buffett said.

In contrast, “a bet on stocks is basically a bet on America,” he added. “All you had to do was figure that America was going to do well over time.”

Warren Buffett On The Importance Of Patience

Mr. Buffett began the event on Saturday with a personal account of his first investment. The year was 1942 and he spent $120 — his entire savings at the time — to buy 3 shares of Cities Services preferred stock.

After stomaching the losses when shares initially plunged below $30, the stock made a comeback and young Warren was able to sell his entire stake for a $15 gain.

However, this was just the start of a long upswing for the stock, which eventually got called for over $200 per share. This taught Warren the valuable lesson of patience earlier in his investing career…

Wells Fargo Will Come Out Better

Wells Fargo was a popular topic after regulators and whistle-blowers revealed employees were creating fake accounts with real customer data, charging excess mortgage fees and forcing customers to buy unnecessary insurance.

This has led to the resignation of CEO John Stumpf and penalties by the Fed barring Wells Fargo from future growth.

However, Warren Buffett was adamant that companies emerge from situations like this stronger than they went in.

“All the big banks have had troubles of one sort or another and I see no reason why Wells Fargo as a company, from both an investment standpoint and a moral standpoint going forward, is in any way inferior to the other big banks with which it competes,” Buffett said.

Wells Fargo (WFC) stock still sits near its 2 year low.

Thoughts On A Trade War

“It’s just too big and too obvious, the benefits are huge and the world’s dependent on it in a major way for its progress that two intelligent countries will do something extremely foolish,” Buffett said on Saturday.

“There will be some jocking back and forth and there will be some things that will make some unhappy,” but in the end Warren was adamant that this will not escalate into an all-out trade war.

And that’s coming from a man whose company owns dozens of businesses that rely on China for materials…

In addition, if you’re looking to put some money to work, Charlie Munger says to look no further than our adversary in the trade war.

“Americans are missing China because they think it’s too hard and too far,” Charlie said on Saturday. These comments were followed up on CNBC earlier this morning where he said, “The best companies in China are cheaper than the best companies in the United States,” and that his family is already “substantially” invested in China.

These are strong words from a value investor like Munger. For more on China, stick with The Daily Edge as we dig deeper into Charlie’s advice.

Now let’s get to the 5 Must Knows for May 7th as we start a new week…

5 Must Knows For Monday, May 7th

Historic Employment — On Friday, May 4th, the U.S. Labor Department released its monthly unemployment figures which showed the unemployment rate fell to 3.9%. That’s the lowest level since December of 2000. However, the good news could lead to faster rate hikes if inflation continues to tick higher. This will be evident on Thursday when the Labor Department releases its Consumer Price Index (CPI).

New NAFTA? — Today, negotiators from the U.S., Mexico and Canada are scheduled to meet in Washington to begin what is hopefully the last bit of NAFTA negotiations. Although no new details have emerged, the midterm elections are seen as a critical deadline for the Republican-controlled Congress to pass the deal.

Earnings On Deck — Earnings season rolls on with Disney, Hortonworks and Electronic Arts reporting on Tuesday, Anheuser-Busch Inbev, Albemarle and Fox 21st Century reporting on Wednesday, Wheaton Precious Metals, Nvidia and Randgold reporting Thursday, and Thomson Reuters and ArcelorMittal reporting Friday.

Putin Sworn In …read more

From:: Daily Reckoning

Financial Collusion: A Decade After the Crisis, We’ve a Lot Yet to Learn

Nomi Prins

This post Financial Collusion: A Decade After the Crisis, We’ve a Lot Yet to Learn appeared first on Daily Reckoning.

I’m Nomi Prins, a friend and colleague of Nilus here to fill in for the weekend.

The great American novelist F. Scott Fitzgerald gets credit for my new book, Collusion: How Central Bankers Rigged the World. A decade after I left my final Wall Street post — as a managing director at Goldman Sachs — it was The Great Gatsby that carried me back in time and forward in geography.

Let me tell you how it went down.

You see, after I’d written the book It Takes a Pillage about the 2008 financial crisis, I was exhausted. Not from writing, but from the sheer ignorance that the global elite had paid (and are still paying) to the banking, economic and financial conditions that led to disaster. In 2004, my book Other People’s Money warned exactly how the 2008 financial crisis would unfold. Sadly, I was right. In the wake of the chaos, I needed a break.

Attempting to unplug, I wandered into my local library to spend an afternoon perusing. Right there in the front, I saw something that caught my eye. A poster for “Great Gatsby month” activities around the neighborhood, including 1920s music, readings, specialty drinks in local bars and a discussion of the book at a senior citizens’ community club.

By returning to the glitz and drama of the 1920s, it hit me.

The same banks that had perpetuated the crash of 1929 had perpetuated the crash of 2008!

The same families and their confidantes over decades had consistently set the stage for expansion and crisis — always to their benefit.

By researching the Big Six banks and their leaders who protected their interests at the expense of the rest of the population, I constructed the foundation of my next nonfiction book, All the Presidents’ Bankers.

I traveled the U.S. from New York to California, from Kansas to Texas, digging into the presidential libraries for documents relegated to the coffins of history until I uncovered them.

They revealed key findings — that for the past century of American history, the same banks and their bankers exuded influence over presidents from both parties.

Then came a life-changing moment. A year after the book came out, I got an email. It was from the Federal Reserve. Every year, the Federal Reserve, the IMF and the World Bank have an annual internal conference. It’s where the most elite central bankers from around the globe gather. The Fed invited me to talk at the opening session. The session would take place in the very room in which the Fed convenes to set interest rates.

I was in shock. To say the least, I hadn’t written very nice things about the Fed’s policies since the financial crisis. In very public channels, I had criticized their cheap-money and quantitative easing policies as subsidies to the private banks that had crashed the system. I had labeled their policies as rigging the markets and unhelpful to ordinary citizens and the Main Street economy.

I thought the invitation might be a mistake, but they assured me that they knew exactly who I was. In fact, they wanted me to address the topic of why Wall Street banks weren’t helping Main Street, and they looked forward to hearing my views.

A few months later, I was sitting in the front of a room with central bankers from around the world, listening to Fed Chair Janet Yellen proclaim that the worst of the crisis and its causes were behind us.

The gloves were off. The first thing I asked the distinguished crowd was, “Do you want to know why big Wall Street banks aren’t helping Main Street as much as they could?” The room was silent. I paused before answering for everyone. “Because you never required them to.”

When a bank is offered a pile of cheap money in bailouts and loans for dangerous behavior with no major consequences and no stipulation that they engage the real economy, why should they? What would you expect? The presentation was clear, and you can see the notes I revealed to them here.

Something more interesting happened after my talk. Some of the people at the Fed — not at the top, but in the ranks — told me it made sense. Many thanked me. Leadership of central banks from Lebanon to Thailand thanked me for making it clear that the entire monetary system was controlled more than ever by the major central banks, with the Fed leading the way.

I realized right then and there that the zero interest rate policies prevailing in the U.S., Europe and Japan were part of a coordinated effort. They were trying to render the cost of money cheap everywhere so that banks and other financial players could thrive. The move could also harm smaller, emerging-market countries. The side effects would lead to asset bubbles that could pop and cause an even greater crisis the next time around.

I had to get back on the road. This time, it wasn’t to traverse the U.S.; it was a global affair. My next expedition took me from Mexico to Brazil, China to Japan, Europe and the United Kingdom and back across the United States.

I spoke with central bankers who gave me intel about how this collusion happened in practice and behind the scenes. That information was verified multiple times over.

What might surprise you is that after confirming these findings with both off-the-record and public sources — from different languages to local sources — is that very few had put it all together.

No matter what happens from a geopolitical perspective, monetary policy strategy is often more collusive than government leaders might present on the surface.

When I met with a key central banker in Brazil, he left me shocked after revealing his analytic findings. He presented me with reams of information about just how far the collusion went. The central banker’s analysis showed the high correlation between the level of markets …read more

From:: Daily Reckoning

The Coming Massive Commodity Rally

Commodities Rally?

This post The Coming Massive Commodity Rally appeared first on Daily Reckoning.

Earlier this year Goldman Sachs had sent a report out to its high-net-worth clients indicating that it was the best time to own commodities in at least 15 years, if not decades.

This view from Goldman was based on three forces coming together at the same time:

  1. Economies around the world are growing in unison (good for commodity demand).
  1. The world is borrowing more money, which means more to spend (again, good for commodity demand).
  1. Inflation is on the rise (again, good for commodity demand).

You may not love Goldman Sachs, but their research is definitely worth paying attention to.

Then just a short time later, the notoriously secretive hedge fund legend Paul Tudor Jones had suddenly become rather chatty. His main message detailed a very bullish view on commodity prices.

Jones’ view is based on a belief that the recent big tax cut is a mistake. His issue with the tax cut is timing, it coming nine years into an economic expansion. Jones believes the tax cut is going to be the spark that finally sets off the inflation fire.

I see his point — there are a lot of inflationary forces at work here. This tax cut, on top of a decade of ultra-low interest rates, on top of years quantitative easing, on top of a spending bill.

The bottom line for Jones is that nothing performs better in an inflationary environment than commodities.

And in April another very smart investor reported that he thinks commodities are going to perform exceptionally well. At some point we may need to conclude that these proven investors are onto something.

This time around the investor is DoubleLine Capital’s Jeffrey Gundlach.

Gundlach doesn’t just think commodities are going to do pretty well from here; he thinks commodity prices are on the verge of exploding higher. Gundlach isn’t looking for a 30% rise; he expects commodities as a group to go up 100%, 200% or even 400%!

That is a bold call.

As to why (always the important part) Gundlach is so bullish on commodities, the investing heavyweight hits on a few factors that are similar to what we heard previously from Goldman and Jones.

Those factors include:

  • Continuing growth in global economic activity
  • The Trump tax cut, which will boost economic growth
  • The incredibly easy money policies from the European Central Bank
  • A continued weakening of the U.S. dollar.

In addition to putting together the fundamental case behind rising commodity prices, Gundlach points to something else. That something else is history.

He captures his point in the chart below. As of today the S&P GSCI commodity index is sitting at its lowest point relative to the S&P 500 since the dot-com bubble:

What that means is that today commodity prices are historically cheap relative to large-cap stocks.

Since 1970, commodities have only been this inexpensive relative to large-cap stocks twice before. After each of the prior instances, commodity prices staged furious rallies, outperforming the S&P 500 by more than 800%.

History doesn’t necessarily have to repeat, but when you put the fundamental case alongside what has happened historically it is hard not to think commodities are poised to do well.

That is good news for subscribers to Contract Income Alert because the portfolio holds bonds of several commodity producers with exposure to oil, natural gas and copper, primarily. We don’t need a big commodity rally for these bonds to do well, but it certainly isn’t going to hurt!

Now the Bad News — After These Commodity Rallies…

I can’t believe it is true, but the financial crisis is now 10 years in the rearview mirror. It feels like last year.

I remember exactly where I was when I heard that Bear Stearns was being bought out, when Lehman Bros. collapsed and when George Bush so eloquently stated, “If money isn’t loosened up, this sucker could go down”!

Since those scary days we have had nearly a decade of uninterrupted economic growth and smooth sailing in the stock market. My point is that we need to be aware that sooner or later there will be a bump in the road.

Jeff Gundlach’s historical chart provides a pretty compelling argument that a major commodity rally is close at hand. Unfortunately, if you look at what has happened historically after those commodity rallies, you will find dates that coincide with recessions.

It happened in 1973, 1990 and of course 2008.

The good news is that these past commodity rallies lasted anywhere from four–eight years. If this commodity rally is just starting, the next recession still could be a ways off yet.

Between now and then rising commodity prices are going to fatten up the cash flows and improve the balance sheets of many of the companies whose bonds Contract Income Alert subscribers own.

By the time the next recession rolls around, armed with a few more years of steady interest payments, we are going to be ready, willing and eager to take advantage of the discounted bond opportunities it produces.

Of all the major commodities, the biggest story now is oil.

2017 saw a significant decline in oil inventory levels, especially in the fourth quarter. The chart below will show you that this trend has continued into the first quarter of 2018 and taken us to a place we haven’t been in a long while:

Oil Storage

I believe that this chart is very important. It details the number of days of oil demand that the U.S. has in storage relative to the five-year average. In other words, this tells us how long it will take us to consume all of the oil we currently have in storage.

The blue line with the white circles represents 2018. You will notice that we are now right at the very bottom of the five-year average in terms of days of oil demand in storage.

I can tell you that we haven’t been at the bottom of this range in a long time.

If you look back to the line that depicts 2017, you will notice that as recently as September 2017 we were right at the …read more

From:: Daily Reckoning