Risk

08 Aug

The S&P 500 is about to hit a new all-time high. How much upside can you expect?

Since the beginning of July, the market has shown quite a bit of bullish momentum. As of this writing, the S&P 500 (SPY) has rallied more than 150 points from a pivot low in late June in the 2,700 area – a total gain in a little over a month of 9%. The index is now poised to match, and quite possibly exceed the highs it reached in late January. For most technical traders, a new high marks a break above resistance that should give the market momentum to keep pushing even higher. If you’re not the type of person, however to simply “leap before you look,” then like me, you want to try to figure out how much room is left.

How much upside remains in the market isn’t an easy question to answer, simply because nobody can make anything more than a semi-educated guess about future events – or the way the investing world will interpret them. The same technical traders who look for new all-time highs to extend trends even further also like to use historical price action to come up with estimates. Economists and fundamental investors try to use geopolitical and macroeconomic data and events to identify keys and trends. I hesitate to say that any one approach is better than another. Instead, I like to consider a combination of a couple of different technical techniques, along with economic and, yes, even geopolitical conditions to try to come to my own opinion.

I spent some time this morning going over some of that data, and here’s what my early conclusions are. Keep in mind, these are just a few of my own best attempts to make a semi-educated guess, so you can take it or leave it as you wish.

Some Fuzzy Math

I’ll start by giving you a look at a technical chart of the S&P 500.

There are a couple of elements of this chart that I think are useful right now. The first is the Relative Strength (RSI) indicator shown in the lower portion of the chart. RSI is a sentiment and momentum indicator that oscillates between upper and lower extremes to gauge a trend’s strength and give traders a way to estimate the likelihood the trend will continue or reverse. At the upper extremes (above 70), reversal risk to the downside is increased, while at the lower extremes (below 30), the opposite is true. The other element that comes into play about RSI is that stocks will often continue to follow their current trend even as RSI hovers near, or even beyond extreme levels. That reality is what makes RSI interesting to me right now. Even as the S&P 500 is pushing near to the all-time high it set in January of this year, RSI remains just a little below its uppermost extreme. It has also managed to oscillate within its upper and lower extremes since that high was reached in January, with its general pattern of highs and lows since April closely approximating the pattern of the index. That is a confirmation of the market’s trend over the last four months, and the fact that the indicator still hasn’t pierced its upper extreme band suggests there could be more room to run.

At this point, it’s worth taking a moment to discuss a basic tenet of trend-based analysis. Trends tend to move in what I like to think of as stages. Typically speaking, most long-term trends can be broken into three different stages. Stage 1 is the earliest portion of a trend, when the market begins to reverse from an extreme or high or low. That’s the hardest stage to recognize, simply because it moves against the grain of the current longer trend, when most people will simply see that counter move as a minor correction or pullback within that trend. Stage 2 is the longest portion of a trend, and the area where the most money is likely to be made. It’s where the new trend is easiest to identify, and so more and more investors jump on board in that direction, making it easier and simpler to maintain. Stage 3 is the latest stage of the trend, and what I like of as the “last gasp” stage of that long-term trend. There is often still quite a bit of room to move along the trend in this stage, and so this stage can still yield very profitable results; but it also means that reversal risk is greatly heightened during this stage.

The challenge about the stages of a trend is predicting how long any given stage will last. Stage 2 can last 4 to 5 years in many cases, while Stages 1 and 3 are usually considerably shorter. The problem is that word – usually. I’ve been saying the market is in Stage 3 of its long-term upward trend for more than two years, which is undoubtedly longer than that stage should last. I maintain that attitude, however, simply because I think it is smarter to estimate conservatively; plan for the best, but be prepared for the worst. That means that I want to recognize and take advantage of upside opportunity when it’s there, but be ready and positioned to react quickly and effectively when the market reverses back the other way.

If you operate on the idea that the market is in Stage 3, any upside that remains should be somewhat limited. That is where the “291.78 Total Distance” estimate I highlighted on the chart comes into play. Some people will take the total distance of the last market correction to estimate how far the market’s new opportunity will be after a new high is reached. I think it’s reasonable to use the total distance as a reference point, but I prefer to think in somewhat more conservative terms.

Another technical method of market analysis that I have learned to appreciate over the course of my years in the market is Fibonacci analysis. It’s pretty fascinating to see how market trends, and their swings from high to low correspond with Fibonacci mathematics. Those calculations can also be used to estimate a market’s extension of a trend. Here’s what we get if we apply the .618 Fibonacci ratio to the total distance of the market’s correction from January to April of this year:

291.78 X .618 = 180.32

We can add this number (roughly 62% of the total size of the correction) to the last market high to get an estimate of how much further the market could run if the resistance from that high is broken.

2,872.87 + 180.32 = 3,052.87

180.32 / 2,872.87 = 6.27% total upside

Forecasting broad market upside of about 6% if the market makes a new high seems like a pretty conservative estimate; if it is even remotely close to correct, that should translate to some pretty healthy gains on individual stocks. How long that kind of a run will take is anybody’s guess. I decided to look back at the last two bull markets to gauge how long Stage 3 of their respective long-term trends lasted.

The bull market that ran from 2002 to 2007 hit a high point in October 2007 before beginning its reversal; the “last gasp”, final stage of that five-year trend began in August, meaning that Stage 3 in that case covered about a two-month period of time. Prior to that, the March 2000 high that marked the end of the “dot-com boom” started its “last gasp” push in February of the same year. Saying the market could move about 6% in one to two months isn’t unreasonable given the increased level of volatility we’ve seen from the market this year; but I also think it’s useful to think about how long it has taken the market to recover from its latest correction (assuming, of course, that a new high is actually made). The bottom came in April, so a conservative estimate could suggest that it may take between 2 to 4 months. That certainly implies the market’s trend could last through the rest of the year, or possibly even longer since my estimate intentionally errs on the conservative side.

There are some important elements from a fundamental and economic view that I think support the idea the market has some room and reason to run a little longer. Earnings continue to come in generally strong, and most economic reports (jobs, housing etc.) are also showing pretty broad-based strength. A healthy economy should generally lend itself well to continued strength in the stock market. While interest rates are rising, the Fed has maintained a conservative pace and degree of those increases, and the economy seems to following that lead pretty well. As they currently stand, interest rates remain historically low despite the increases we’ve seen so far. That is also a positive, bullish indicator.

There are risks to my forecast. Frankly, many come from the geopolitical arena at this stage. Trade war concerns are still on everybody’s mind, and the Trump administration’s reimposition of economic sanctions on Iran could put a cap on oil supply that could drive oil prices near to their historical highs. While corporate earnings have yet to really show a negative impact from tariffs between the U.S. and its trading partners, more and more CEO’s are starting to cite tariffs as a risk. If that risk starts to manifest itself in an actual deterioration of revenues, and of earnings, the market can be expected to react negatively. Increased oil prices, at the extreme, could have the net effect of muting demand for a wide range of goods all over the globe. Real estate prices in many parts of the U.S. have also been showing some remarkable increases over the last year or so as well, while wage gains have generally been quite muted; at some point, those increases, along with increasing interest rates could very well put home ownership – a big indicator of broad economic strength – out of the reach of the average working person.

Is there good upside left in the market? I think there is. I also think we have to be careful to factor risk into our evaluation and our investment decisions. Be conservative and selective about how you jump into a new opportunity, and plan ahead about how long you intend to stay or how much gain you want to chase. Put a plan in place to limit your downside risk if you’re proven wrong and the market turns against you, and limit the size of the new positions you take.

By Thomas Moore Bull Market Global Risks Investiv Daily Market Forecast Market Forecast Risk Technical Analysis
16 Jul
COLM makes great products – but buying their stock right now is risky
One of the best-performing areas of the economy this year is the Consumer Discretionary sector, which for the year is up more than 12%. About half of that move has come since the beginning of May as this sector has been one that has led the market even as uncertainty has pushed other sectors lower or at least into a mostly sideways pattern over the same period. A lot of that move has been driven by mostly positive economic data showing continued low unemployment with gradually increasing income levels as well as increasing consumer confidence. That’s been good news for stocks like Columbia Sportswear Company (COLM). The stock is up 26% year-to-date, and more than 64% over the past year.

Depending on your perspective, seeing a stock staging such a strong upward trend over the past year can prompt a couple of different ideas. If you use the long-term trend as a primary indication of trade direction, the stock’s current strength should naturally make you think about placing a bullish trade. If you follow a value-based or contrarian approach, the strength of the long-term upward trend should lead you to wonder if the best opportunity has already passed, and if in fact the downside risk right now outweighs any remaining upside potential.

Based on the company’s most recent earnings report, COLM’s fundamentals are all healthy and seem to indicate not only that business has been growing, but also that it should continue to do so for the foreseeable future. The company’s business is very cyclic in nature, owing to the fact that it so closely tied consumer preferences and trends, as well as to the ebb and flow of seasonal shifts in those trends; even so, over the past year the company has shown strength in just about every important, measurable area. The company itself, however raised a few red flags in its discussion in their report of risks. The fact is that the company manufactures all of its products abroad, using short-term contracts with producers worldwide. Management specifically mentioned concerns about the U.K.’s pending withdrawal from the European Union as well as trade tensions between the U.S. and its trading partners as geopolitical issues that stand to impact them in a negative way.

Fundamental and Value Profile

Columbia Sportswear Company is an apparel and footwear company. The Company designs, sources, markets and distributes outdoor lifestyle apparel, footwear, accessories and equipment under the Columbia, Mountain Hardwear, Sorel, prAna and other brands. Its geographic segments are the United States, Latin America and Asia Pacific (LAAP), Europe, Middle East and Africa (EMEA), and Canada. The Company develops and manages its merchandise in categories, including apparel, accessories and equipment, and footwear. It distributes its products through a mix of wholesale distribution channels, its own direct-to-consumer channels (retail stores and e-commerce), independent distributors and licensees. As of December 31, 2016, its products were sold in approximately 90 countries. In 59 of those countries, it sells to independent distributors to whom it has granted distribution rights. Contract manufacturers located outside the United States manufacture all of its products. COLM has a current market cap of $6.5 billion.

Earnings and Sales Growth: Over the last twelve months, earnings increased impressively, at almost 51%, while sales increased more modestly, at about 12%. Growing earnings faster than sales is difficult, and generally isn’t sustainable in the long term, but it is also a mark of management’s ability to maximize its business operations and manage costs. It should be noted that the company’s Net Income is only about 5% of Revenue, which indicates that they operate with a very narrow margin profile.

Free Cash Flow: COLM’s Free Cash Flow is healthy at a little over $278 million. Their available cash and liquid assets has increased over the last two quarter from about $450 million to more than $808 million in the last quarter.

Debt to Equity: COLM has a debt/equity ratio of 0; they have little to no long-term debt.

Dividend: COLM pays an annual dividend of $.88 per share. At the stock’s current price, that translates to a dividend yield of 0.95%.

Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for COLM is $24.16 per share. At the stock’s current price, that translates to a Price/Book Ratio of 3.81. That’s a bit higher than I usually like to see, but the average for the Textiles, Apparel & Luxury Goods industry is 4.4, while the historical average for COLM is 2.5. While the industry average suggests the stock could still offer some more upside, in this case I think the historical average is a stronger indicator. The stock is significantly overvalued, since a drop to par with the average would put the stock a little below $62 per share.

Technical Profile

Here’s a look at the stock’s latest technical chart.

Current Price Action/Trends and Pivots: The 2-year chart here clearly shows the stock’s impressive run since June of last year; the red diagonal line traces the stock’s trend from that point to its recent high at around $94 per share. The stock has been hovering near to, but slightly below that high level for the past month, an indication of consolidation and uncertainty about how much upside the stock has left. In and of itself, that isn’t an indication that the stock is sure to reverse, of course, since the stock could pick up momentum and push higher yet again. However, the red horizontal lines on the right side of the chart, which trace the stock’s current Fibonacci retracement levels, are a good indication of how much technical risk there is right now. If the stock breaks below its current support at around $90, it would likely not find meaningful support before dropping to as low as $78 or $77 per share. If economic conditions begin to deteriorate, an even deeper decline isn’t out of the questions, with the $62 forecast from the stock’s historical Price/Book ratio – a price level the stock last saw in November of last year – clearly within reach.

Near-term Keys: For the stock to maintain its longer-term upward trend in the short-term, it would have to break above $95 will considerable buying volume to provide momentum and strength. Far more likely right now is a decline to somewhere between $78 and $80, where the stock could then test the strength of its long-term trend and possibly set up a new bullish trade from a solid retracement pattern. A break below $90 would indicate that test is imminent; it could also provide a short-term, momentum-based bearish trade set up for shorting the stock or working with put options.
By Thomas Moore Discretionary Investiv Daily Risk
03 Jul
Want to limit trade war risk? Check out SCS
New Trump-imposed tariffs on China, Mexica and Canada are set to take effect at the end of this week, with retaliatory tariffs from those countries on the U.S. scheduled at the same time. The hand-wringing from politicians, talking heads and business experts continues to dominate the headlines, and I expect that the longer it continues, the more the broad market is going to have a hard time finding any really strong bullish momentum. Whether or not that translates to anything approximating a bear market also remains to be seen, no matter what the naysayers claim. Most economists and business executives, on both sides of the argument, do agree that in the long-term a trade war affects all sides negatively. I’ve even heard a few recently refer to an extended trade war as “mutually assured destruction” that will ultimately force all of the countries involved to eventually work out some kind of agreement. How soon will that happen is anybody’s guess, of course, so for the time being expect uncertainty and speculation to keep dominating the headlines and the news wires.

As an investor, you can use the fact that a lot of companies that could, or will be directly affected by tariffs are likely to see their stocks underperform. In some cases, stocks currently at or near high levels could be pushed much, much lower, and that could create some nice value-oriented opportunities to pay attention to. As a contrarian-minded investor, I like that idea quite a bit, and so I’m watching a lot of those stocks pretty closely. Another smart thing you can do is to try to identify stocks whose actual exposure is likely to be more limited. Steelcase Inc. (SCS) is a stock that has been in business since 1912, but whose small-cap status means you’ve probably never heard of them. Despite that fact, SCS is the world’s largest maker of office furniture and office furniture systems. This is a company with a very good fundamental profile and what I think looks like a great value profile. At its current price, I also think that it represents a low-risk option if you’re looking for a way to invest in a stock that could provide some good long-term growth potential even as the U.S. keeps wrangling with its global trading partners.

Fundamental and Value Profile

Steelcase Inc. provides an integrated portfolio of furniture settings, user-centered technologies and interior architectural products. The Company’s segments include Americas, EMEA and Other Category. The Company’s furniture portfolio includes panel-based and freestanding furniture systems and complementary products, such as storage, tables and ergonomic worktools. Its seating products include task chairs, which are ergonomic seating that can be used in collaborative or casual settings and specialty seating for specific vertical markets, such as healthcare and education. Its technology solutions support group collaboration by integrating furniture and technology. Its interior architectural products include full and partial height walls and doors. It also offers services, which include workplace strategy consulting, lease origination services, furniture and asset management and hosted spaces. Its family of brands includes Steelcase, Coalesse, Designtex, PolyVision and Turnstone. SCS has a current market cap of $1.2 billion.

Earnings and Sales Growth: Over the last twelve months, earnings have declined while sales increased slightly. Most of the earnings decline was attributed in their last quarterly report to increased commodity costs in the U.S. while most of the increase in sales came from the EMEA (Europe, Middle East, Africa) region, with the greatest portion of overseas growth coming from Germany and the U.K. Revenues from EMEA operations totaled about 18.2% of the company’s total revenues, while the Asia Pacific region contributes less than 15%. The company cites Brexit uncertainty as a risk to its EMEA sales growth. Tariffs on steel and aluminum imports to the U.S. could actually benefit SCS as Canada and China provide most of the international competition in their industry.

Free Cash Flow: SCS’ Free Cash Flow is pretty cyclical, and declined almost 50% over the last quarter, but remains generally healthy, with almost $135 million in cash and liquid assets on their balance sheet.
Debt to Equity: SCS has a debt/equity ratio of .36, which is pretty conservative. Their operating profits are adequate to service their debt, with good liquidity from cash to provide additional stability in this area if necessary.
Dividend: SCS pays an annual dividend of $.54 per share, which at its current price translates to a dividend yield of 3.89%.

Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for SCS is $6.93 per share. At the stock’s current price, that translates to a Price/Book Ratio of 2.0. Ratios closer to 1 are usually preferred from a value-oriented standpoint, however higher multiples aren’t that unusual, especially in certain industries. The average for the Office Services & Supplies industry is 1.8, while the historical average for SCS is 2.7. I usually prefer the historical average as a measuring stick, which provides a long-term target price of $18.71. That’s 35% higher than the stock’s current price and would put the stock in the neighborhood of its 2-year high price.

Technical Profile

Here’s a look at the stock’s latest technical chart.

Current Price Action/Trends and Pivots: The stock is hovering near to its 2-year low price and appears to be holding solid support a little above $13 per share. Since October of last year, the stock has traded within a roughly $2 range, with resistance around $15.50 and support as already mentioned around $13. The stock’s highest level is around $18 per share, just a little below the long-term target price the value analysis I referred to in the last section provides. The stock’s all-time high is around $20 and was last reached in late 2015.

Near-term Keys: With the stock currently pivoting higher off of support around $13, and resistance likely around $15.50, there is some room for short-term traders to speculate on a bullish move of about $2 in the short-term. That could be a good swing trade using call options or buying the stock outright. If you’re willing to work a longer-term viewpoint, the $18 range is a reasonable level to work with as well. If the stock breaks its support around $13, it should find additional support around $12 per share. Downside risk in either the short-term or the long-term appears to be pretty low, which also means trading opportunities on the bearish side for this stock provide a very low probability of success.
By Thomas Moore Investiv Daily Risk Tariffs Value Investing
15 Jun
U.S.-China trade war could really hurt WMT
This morning marked the opening of yet another chapter in the drama that is U.S. trade diplomacy. The Trump administration announced this morning that U.S. Customs and Border Protection will begin to collect tariffs on the first $34 billion worth of Chines imported goods on July 6. This is the next step in the implementation of duties first announced in March of this year on approximately 1,300 different finished goods imported to the U.S. by its largest trading partner. The final $16 billion of a proposed $50 billion total of tariffs is still under review.

This is a clear escalation of the two nation’s ongoing trade dispute, and not surprisingly China responded quickly, saying that they will act quickly to “take necessary measures to defend our legitimate rights and interests.” They have previously threatened their own set of tariffs on a wide ranging list of U.S. product ranging from soybeans and meat to whiskey, airplanes and cars.

It’s one thing to watch the news and listen to talking heads wring their hands and bemoan the negative effects that an extended trade war would have on economic growth. And that’s not to say that they’re wrong; over the long-term, a trade war could bleed into virtually every part of the U.S. economy. Keep in mind that virtually every kind of finished product uses steel or aluminum, which is the basis for the first round of tariffs that Trump first started talking about three months ago. The real question for the average American is where those negative effects are most likely to be seen hitting their wallet. I think one of the first, and most vulnerable places can be found not far from where you live. Walmart Inc. (WMT) sources 75% of its merchandise from China, and that puts one of the largest retailers in the country literally on the cutting edge of what is happening right now.

This isn’t an unrealistic argument; one of the ways WMT has always differentiated itself from its competitors is as the low-cost leader for consumers. The longer a trade war takes to find a resolution, the more their costs on the vast majority of goods that fill their shelves are going to rise. As you’ll see below, WMT simply doesn’t have much ability to absorb those costs to keep them from passing through to their customers. That begs a question that only each customer can answer: if that item – whether it be a shirt, a power tool, a toy, or an electronic gadget – that you’re used to getting from WMT costs 25% or more than it used to, are you going to be more or less likely to buy it?

Current consumer trends suggest that in the case of luxury items – say, an $80 shirt – a lot of consumers that are already willing to pay that much for a shirt will probably also pay $90 to $100 for the same item. That is usually less true when the conversation shifts instead to bargain-priced items, like a $20 shirt. That puts WMT in the very difficult position of watching its operating margins erode even more by absorbing increasing costs to keep sales high or pass those costs to their customers, who may simply choose not to make the same purchases they used to. Neither scenario works out very favorably for the company’s bottom line.

Fundamental and Value Profile

Walmart Inc., formerly Wal-Mart Stores, Inc., is engaged in the operation of retail, wholesale and other units in various formats around the world. The Company offers an assortment of merchandise and services at everyday low prices (EDLP). The Company operates through three segments: Walmart U.S., Walmart International and Sam’s Club. The Walmart U.S. segment includes the Company’s mass merchant concept in the United States operating under the Walmart brands, as well as digital retail. The Walmart International segment consists of the Company’s operations outside of the United States, including various retail Websites. The Sam’s Club segment includes the warehouse membership clubs in the United States, as well as samsclub.com. The Company operates approximately 11,600 stores under 59 banners in 28 countries and e-commerce Websites in 11 countries. WMT has a current market cap of $246 billion.

Earnings and Sales Growth: Over the last twelve months, earnings increased by 14%, while sales grew a little over 4%. It’s hard for a company to grow earnings faster than sales, and generally not sustainable over time. I do take the difference, however as a good sign that management is doing a good job of maximizing their business operations. Diving a little deeper, however provides a good look at the reason you should be concerned about increasing costs from tariffs on Chinese goods. As of the company’s last earnings report, WMT had more than $500 billion in revenue, with net income of almost $9 billion. Net income is calculated by subtracting the costs of doing business from revenues, which it means it provides the baseline for the earnings per share number you and I use to measure a stock’s profitability. Comparing net income to total revenues gives you an idea about what kind of profit margin the company is working with. For WMT, that number is only 1.77%, a very low number that implies they work with very narrow operating margins.

Operating Trends: WMT has been doing a great job of growing revenues, and since late 2014 they’ve grown from about $470 billion to their current level of a little over $500 billion. Over the same period, the reverse is true about their net income, which has dropped more than 50% from a high a little above $17 billion to just under $9 billion currently. That negative trend is also reflected in the decline of net income as percentage of revenue, which was about 3.6% at the end of 2013 but, as already observed is now only 1.77%. The company’s margins have already been under considerable pressure for some time, which further bolsters the argument they just don’t have a lot of wiggle room to work with.

Debt to Equity: the company’s debt to equity ratio is .46, which is low and should generally be quite manageable. WMT has also done a good job decreasing their total long-term debt since the first quarter of 2014, from more than $45 billion to a current level of about $29.4 billion.

Dividend: WMT pays an annual dividend of $2.08 per share, which translates to an annual yield of 2.49% at the stock’s current price.

Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for WMT is $26.44 per share. At the stock’s current price, that translates to a Price/Book Ratio of 3.15. This is below the industry average, which is 4.0, but inline with the stock’s historical average, which to me suggests the stock is fairly value right now, with limited upside potential in the long-term.

Technical Profile

Here’s a look at the stock’s latest technical chart.

Current Price Action: The stock has declined from a high around $110 in January to its current level around $83. That’s a drop of more than 25%, which at first blush might look pretty good for a stock that a lot of value investors would say has a lot of stickiness; that is, they will continue to generate high revenues even if a healthy economy begins to struggle, because consumers will continue to spend their money there. That is a true statement when it comes to WMT, but as observed above, I think the risk comes from what will happen as their costs increase. Will they continue to generate attractive profits, or will their margins erode? The risk is much higher they will erode.

Trends and Pivots: I’ve drawn two lines to illustrate where I think the stock’s real downside lies right now. The horizontal red line is just below the stock’s current level at about $82 and appears to be acting as good support right now. The horizontal blue line is drawn at the stock’s multi-year low, which was reached in February of last year at around $66. The red bidirectional arrow emphasizing the $16 per share difference between the stock’s current price and that low point is, I think a clear indication of investor risk right now. That’s a downside risk of just a little less than 20% right now. I also see little reason – fundamental or technical – to suggest the stock should reverse the intermediate-term downward trend anytime soon, which means that risk right now is much higher than any potential reward.

Near-term Keys: Watch the stock’s movement carefully over the next few days. A move to $90 would mark a reversal the intermediate trend’s downward strength and would act as a good signal point for a good bullish trade, either by buying the stock or working with call options. On the other hand, a drop below $82 would mark a major support break, with a drop to the aforementioned $66 level likely before any new significant support is reached.
By Thomas Moore China Defensive Stocks Global Risks Investiv Daily Retail Risk US Politics
14 May

Can You Hear The Economic Warning Bells Ringing?

A quick investment perspective on the current economic news will give us insight into what to do with our portfolio, what the best risk reward portfolio allocation is at this point in time, and what one can expect to happen.

I’ll look at U.S. economic data, emerging market yields, and touch on Italy which is becoming a bigger and bigger risk.

Economic Data – Strong, But Also Weak

The headline consumer price index came in at 2.5% which is good, but might lead to higher interest rates which is a dance that has to stop at some point. More →

By Sven Carlin ECB Emerging Markets European Union FED Global Risks Inflation Interest Rates Investiv Daily Italy Risk US Economy
17 Apr
The Flattening Yield Curve Means Trouble Ahead. Here’s What You Need To Know.
What is the yield curve?

The yield curve is flattening and if it inverts, there will be a recession.

What you can do.

Introduction

In this article, I’m going to explain what the yield curve is, what a flattening or steepening yield curve means, how the yield curve impacts the economy, and see whether the current yield curve indicates that we are close to a recession in 2018. More →
By Sven Carlin Credit Cycle FED Interest Rates Investiv Daily Market Forecast Recession Risk Trends US Economy
07 Mar
Risks Are Piling Up – That’s A Huge Red Flag For Stocks
Last week I discussed how the risk are piling up on the debt side of the equation. However, those aren’t the only risks piling up which isn’t uncommon for humans. When we stray, we usually stray in a big way.

So, on top of the debt, there are other huge risks and today the discussion will be about valuations:

Debt is being used recklessly.

Valuations don’t matter as growth is the key and profitability will come.

Book values are so old fashioned.

Stocks can only go up and corrections and bear markets don’t last long.

Real estate can only go up.

If you invest in index funds, you will do well.

Now, I’ll discuss a lot of macro, and even some politics on Monday, but such factors might be insignificant or very significant depending on market valuations. High market valuations make stocks fragile, while low valuations make them more robust as once stocks are low, there is little room to go lower. However, when stocks are high, a lot of bad things can happen. The sad thing is that we have been there and we are doing the same mistakes all over again. More →
By Sven Carlin Cash Corporate Earnings Investiv Daily Risk S&P 500 Stocks
05 Mar

Stocks Are Crazy Risky Now – We’ll Reveal The Perfect Hedge

There’s some volatility in the markets that we haven’t seen for a long time.

The increased volatility is a sign of nervousness and the market is looking for direction.

No one knows where things will go in the short term as that’s impossible to know. Even Warren Buffett never fails to mention how he has absolutely no idea about where markets will go in the short to medium term.

If we look at things from a macro perspective, the economy is at its limits and we’ve seen the actual GDP finally reach the potential GDP. More →

By Sven Carlin Berkshire Hathaway Cash Debt Inflation Interest Rates Investiv Daily Ray Dalio Risk Stocks Valuations Warren Buffett
19 Jan
Uncertainty & Risk – Huge Difference, Big Rewards
The market doesn’t understand the difference between uncertainty and risk. In fact, it doesn’t even understand what risk is.

Understanding the difference is all you need when investing.

Introduction

Perhaps the most important thing to understand when investing is the difference between uncertainty and risk.

The market hates both uncertainty and risk but fails to separate the two. Therefore, by understanding the difference and how to find it, you expose yourself to low risk, high return investments.

We’ll go through a few examples to show how much power lies in differentiating the two. More →
By Sven Carlin Apple Investing Strategy Investiv Daily Risk
20 Dec
This Is How You Should Look At Risk
Something that has just increased in price isn’t considered risky, but something that decreases is.

Further, something that isn’t volatile is also not considered risky.

I’ll discuss perhaps the most important currently overlooked factor in investing, risk.

Introduction

A recent Wall Stree Journal article discussed how 2017 was a bad year for Chinese IPOs.

On aggregate, China’s 2017 IPOs created a negative 5.7% return and more than half of them produced negative returns of over 10% where 10 of the 16 stocks still trade below IPO prices. More →
By Sven Carlin Investiv Daily Risk S&P 500

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Some Fuzzy Math

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Fundamental and Value Profile

Technical Profile

Fundamental and Value Profile

Technical Profile

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