CVS is reportedly buying Aetna for $69 billion

Aetna’s (AET) board of directors has reportedly agreed to approve the sale of the health insurance giant to pharmacy chain CVS Health (CVS) in a $69 billion deal.  In recent weeks and months, Aetna CEO Mark Bertolini and CVS CEO Larry Merlo have both separately spoken publicly about problems in US healthcare and they both advanced solutions they’ve had in mind. The two, who are ‘good’ friends, even acknowledged that they talk to each other.

Their own words would suggest a merger between CVS, the drugstore retailer that also operates walk-in clinics and a pharmacy benefit manager, and Aetna, the nation’s third-largest insurer, could the beginning of falling healthcare costs. “We are talking with CVS who has 9,000 stores within 3 miles of 80% of the American public,” Bertolini said at a Fortune magazine event this spring. “Should [CVS] be in the business of seasonal items or DME? Why can’t they be first stop outside the home in the community for healthcare when they are right around the corner?”

Source: Yahoo Finance

Why this news matters to traders:  The deal values Aetna at about n a cash-and-stock deal that values Aetna at about $207 a share and includes $145 in cash and 0.8378 shares of CVS. Traders could benefit from the deal, if it goes through, by taking positions in AET which is priced below that price.

The steep discount indicates traders have significant doubts the deal will close.

AMD and Qualcomm Technologies to Support Always Connected PCs on Ryzen™ Mobile Platforms

AMD, today announced that they are working with Qualcomm Technologies, Inc. (QCOM) to bring smooth and fast PC connectivity solutions to AMD’s high-performance Ryzen™ mobile processors, featuring the world’s fastest processor for ultrathin notebooks1. With Qualcomm®  Snapdragon™ LTE modem solutions, AMD and Qualcomm Technologies will help make it easy for the leading global PC companies to create premium computing platforms with Always Connected, Gigabit LTE speeds alongside the AMD Ryzen mobile processors’ blazingly fast performance, fluid graphics rendering, and optimal efficiency.

“Both AMD and Qualcomm have shown a consistent commitment to delivering products that redefine next-generation mobile user experiences,” said Kevin Lensing, corporate vice president and general manager, client computing, AMD. “OEMs around the world will now be able to combine the recently announced AMD Ryzen mobile processors with Qualcomm Technologies’ leading wireless solutions via their Snapdragon LTE modem family to achieve new levels of performance, connectivity and capability for ultrathin notebook PCs.” 

“Qualcomm Technologies believes the Always Connected PC is the future of personal computing, and we are working with AMD to bring each company’s expertise to bear for these exciting products,” said Alex Katouzian, senior vice president and general manager, mobile, Qualcomm Technologies, Inc. “Combining AMD processors with our cutting-edge LTE connectivity technology results in Always Connected Client Notebooks for consumers in a mobile-first future.” 

Source: Yahoo Finance

Why this news matters to traders: Qualcomm has been under assault from Apple and this partnership could provide a significant boost to the company.

The stop is also the target of a buyout at $70 a share. That price could limit the upside of the stock for some time.

U.S. trade gap soars as imports from China hit record high

The U.S. trade deficit jumped 8.6 percent in October as imports from China and other suppliers hit a record high ahead of the holiday shopping season, a Commerce Department report released Tuesday showed. The monthly trade gap totaled $48.7 billion, the highest level for a full month since President Donald Trump took office on Jan. 20.

Imports of goods and services hit a record high of $244.6 billion as the U.S. economy continued to strengthen and suck in more goods from abroad. Imports totaled $48.2 billion from China, $39.4 billion from the EU and $28.7 billion from Mexico — all record highs.

U.S. exports totaled $195.9 billion in October, unchanged from September. However, exports to China hit $13 billion, the highest since December 2013. During Trump’s recent visit to Beijing, U.S. companies signed contracts valued by the Commerce Department at around $250 billion. But it could be months before any of those transactions are reflected in U.S. trade data.

Source: Politico

Why this news matters to traders: A trade war has no winners according to economists. But, there is a risk of a trade war or at least sanctions against China. This could be traded with iShares FTSE China Index Fund (NYSE: FXI).

Put options could deliver gains if share prices drop.

Student Loan Debt Is Now As Big as the U.S. Junk Market

U.S. student loan debt now equals the size of the $1.3 trillion U.S. high-yield corporate bond market, presenting investors with a whole different range of risks.

“Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.” 

While the trend of rising defaults on student loans doesn’t pose “systemic financial risks,” it does impact household behavior as the debt load itself hurts home ownership rates, Young and Karoui said. The share of student loan debt that is securitized, meaning it’s backed by assets and known as asset-backed securities, is about $190 billion, according to Goldman Sachs. Of that, about $150 billion is linked to loans where the repayment of the principal is guaranteed by the U.S. government.

Source: Bloomberg

Why this news matters to traders: Student loan servicing companies like SLM Corporation (Nasdaq: SLM) could be among the biggest winners from this news.

The chart shows that SLM has been forming a basing pattern over the past year. After the pattern is completed, technical analysts expect a price move that is at least equal to the depth of the pattern. This points to a price target near $16 and a potential gain of about 25% for SLM.

Mueller Subpoenas Trump Deutsche Bank Records

Special prosecutor Robert Mueller zeroed in on PresidentDonald Trump’s business dealings with Deutsche Bank AG as his investigation into alleged Russian meddling in U.S. elections widens. Mueller issued a subpoena to Germany’s largest lender several weeks ago, forcing the bank to submit documents on its relationship with Trump and his family, according to a person briefed on the matter, who asked not to be identified because the action has not been announced.

“Deutsche Bank always cooperates with investigating authorities in all countries,” the lender said in a statement to Bloomberg Tuesday, declining to provide additional information. Deutsche Bank for months has rebuffed calls by Democratic lawmakers to provide more transparency over the roughly $300 million Trump owed to the bank for his real estate dealings prior to becoming president. Representative Maxine Waters of California and other Democrats have asked whether the bank’s loans to Trump, made years before he ran for president, were in any way connected to Russia. The bank previously rejected those demands, saying sharing client data would be illegal unless it received a formal request to do so. Trump has denied any wrongdoing.

Source: Yahoo Finance

Why this news matters to traders: Mueller’s probe has proven to be market moving. On the day retired Lt. Gen. Flynn pled guilty, stocks suffered a sharp selloff.

Later that day, news of tax reform led to a partial recovery. But, the danger of this investigation should not be underestimated by investors.

Please visit our blog at InvestingSecrets.com for more stock related news and services.

Investors are often advised to focus on the long term. This might be good advice but often it comes from a financial adviser who 1% or so of the assets they offer advice about. The adviser’s long term focus may be on maximizing the time you allow them to collect fees.

Now, there are certainly good advisers and there are certainly times when the cost of financial advice is a bargain. But, a focus on the long term might not be the only way. There are a number of investment opportunities that work well as Short Term Investment Tips for Conservative Investors.

Short Term Investment Tips for Conservative Investors

To invest for the short term, it is important to define your personal financial goal. This is a process that is no different than long term investing.

Your goal could be to ensure cash is available. This is a common short term goal of those in retirement or approaching that milestone. To meet this goal, many investors convert holdings to cash or short term fixed income exchange traded funds (ETFs).

One fund to consider is PIMCO Enhanced Short Maturity Active ETF (NYSE: MINT). Its chart is shown below.

While the trend is clearly up, MINT has gained just 1.7% in the first 11 months of the year. It can be thought of as an alternative to holding cash although as an ETF, there is more risk in MINT than in cash.

Short Term Investment Tips for Aggressive Investors

Other investors may want to use short term investment strategies to harness the power of compounding. The importance of compounding returns is well known. By compounding, in the best case, you reinvest profits to maximize possible gains.

For example, with compounding, a $1,000 investment grows to $2,594 in ten years with 10% average annual gains. Without compounding, that same $1,000 investment increases to just $2,000 over 10 years at 10% simple interest.

Compounding increased the gain by nearly 60% in that example. But, it is important to consider the fact that there is no reason compounding must be measured in years. Short term investment strategies could use periods of months for compounding.

For example, if you could compound gains at a rate of 1.5% per month, $1,000 would grow to more than $2,500 in a little more than five years. This is significantly faster than compounding at an annual rate.

Many investors will question whether steady gains are possible in a short time frame. There are actually a number of ways that could be accomplished.

One short term investment tip is to consider using best investment options strategies.

Options Can Compound Wealth in the Short Term

An option gives the buyer the right, but not the obligation, to buy or sell a stock at a predetermined price at any time prior to a predetermined expiration date. Options buyers never risk more than they paid to purchase the option.

Options generally trade at low prices, often less than $100 for a contract which effectively controls 100 shares of stock. Buyers cannot lose more than the cost of the option, but sellers can lose more than their initial investment. There are some strategies where sellers face unlimited risks.

While selling options may not be the right strategy for all investors, there are some investors who use these strategies to achieve wealth. But, for now, we will focus on strategies with limited risks. Some of these strategies can involve both buying and selling options but still have limited risks.

Individual investors will generally trade call options or put options. A call option gives the buyer the right, but not the obligation, to buy shares of a stock or ETF. A put option gives the buyer the right, but not the obligation, to sell shares a stock or ETF.

A call option will generally increase in value if the price of the stock or ETF the option covers increases in value. A put option generally benefits from a decline in price.

Specific Short Term Investment Tips

Rather than explain how calls and puts can be used in theoretical terms, we will look at specific trade ideas. We will consider trading options on the SPDR S&P 500 ETF (NYSE: SPY), an ETF that tracks the S&P 500 index.

This ETF has options available that expire every week. Many stocks will have weekly options while others will only have monthly options. No matter when they expire, all options share certain characteristics and can be traded in exactly the same way.

SPY has moved an average of 1.4% in a week over the past year. With SPY trading near $265, that means the average price move per share is expected to be about $3.70.

There is a call option expiring in one week with an exercise price of $265. That means it gives the buyer the right to buy 100 shares of SPY for $265 per share. If SPY rises to $267, this option would be worth at least $2 per share, the difference between the market price of SPY and the exercise price of the option.

The call option could be worth more than that difference and often is because options are priced on various factors including market volatility, interest rates and the amount of time to expiration.

That option is trading for about $1.50. Since each contract covers 100 shares, this option would cost about $150 to buy ($1.50 * 100 shares).

If SPY makes an average move and the price action is all to the upside, this option would be worth at $3.70 and the trade would deliver a gain of more than 100% in a week. Conservatively, if the ETF makes even a small move upward, just one third of the average range, this option would most likely deliver a gain of at least 10%.

Now, 10% of $150 may not sound like much, but this is a trade that would last just one week. And, the price is low enough that many traders could buy two or three options contracts even in a small account.

But, there will also be weeks when SPY makes a relatively large move. Over the past year, the largest one week move was 2.77%. This could more than double an investor’s money, in just one week.

Of course, there will be some weeks when the trade loses money. In fact, there will be weeks when the market moves very little. The smallest move in one week over the past year was just 0.5%. That would most likely lead to a 100% loss on the trade.

Options provide a great deal of flexibility. Investors could buy put options if they expect the stock market to decline. They would then benefit from price moves to the down side. A put option with an exercise price of $265 and expiring in one week also costs about $1.50 as this is written. Th

An investor could buy a put or call every week and target a gain of 1%. At the end of one year, this rate of return would result in a gain of more than 150%, thanks to the power of compounding wealth.

Is 1% a week possible? We believe it is with options trading as long as the investor follows a disciplined approach and takes profits when they are available. This type of strategy can be difficult to follow but it could be well worth the effort since compounding does grow wealth quickly.

In the end, the best short term investment tip is the same as the best long term investment tip. Use compounding to maximize wealth.

For more investing tips, you can follow our weekly blog here. 

 

 

 

UK approves OTC version of Pfizer’s Viagra

The U.K. has become the first place in the world to allow Viagra, U.S. drug giant Pfizer’s (NYSE: PFE) mega-selling erectile dysfunction treatment, to be sold over the counter and without a prescription. Men seeking out the little blue pill will be able to buy Viagra Connect—which has the same central ingredient as regular Viagra—for about £19.99 for a pack of four pills and £34.99 for an eight-pack at the pharmacy.

Pfizer has been fighting to get Viagra an over-the-counter designation in the U.K. for a while now. In fact, it made its first request for direct pharmacy sales of Viagra in the U.K. nearly a decade ago and has also tried to get the European Union to approve a change from prescription to over-the-counter status. Beginning in spring 2018, Pfizer says, the OTC version of Viagra will be available to consumers (as long as the pharmacist thinks it’s okay for the individual).

Source: Fortune

Why this matters to traders: PFE has been in an up trend and this news could push the stock even higher.

Even at a lower price, the OTC drug could add significantly to the company’s sales and profits.

Hasbro-Mattel Merger Could Produce Big Profits

Hasbro (NASDAQ: HAS) is not playing around. One of the largest companies in the toy industry is looking to acquire major competitor Mattel (Nasdaq: MAT) according to a report from The Wall Street Journal. Mattel reportedly rejected Hasbro’s first offer, but I could still see more effort to make a deal happen.

This is not the first time Hasbro and Mattel have considered a combination. The two sides have failed to come to terms in the past, but conditions today make a deal more appealing than ever. The toy industry has been thrown into a state of uncertainty over the past few years for a number of reasons, including:

• The precipitous decline in revenue and profitability for Mattel
• Increased competition from a number of different sides
• Shifting trends among distribution partners

A Hasbro/Mattel merger could address some of these concerns and create significant profit growth opportunities through cross-licensing, increased bargaining power, and cost control.

Source: Forbes

Why this matters to traders: Mattel recently showed signs of bottoming.

A merger is likely to involve a premium to the current price and that could set up a profitable trading opportunity in call options of MAT for aggressive traders.

Financials lead rally as GOP tax bill moves toward full Senate vote

Senate Republicans moved closer Tuesday to passing a bill to overhaul the nation’s tax system after leaders began winning over potential opponents through a series of deals to resolve their concerns.

For Tennessee Sen. Bob Corker, worried that the tax bill would increase the federal deficit, it was the promise of a legislative “trigger” that would repeal the tax cuts if deficits appeared.

For Maine Sen. Susan Collins, it was the promise that separate legislation would be considered to offset the increase in health insurance premiums that is expected if the tax bill eliminates a key provision of the Affordable Care Act.

Senate Republicans emerged from a one-hour meeting with President Trump feeling optimistic that the tax-reform bill would pass in the next few days but acknowledged that the vote will likely be close.

Source: USA Today

Why this matters to traders: Financials tend to be market leaders and a rally in the sector is a sign that the bill market could continue for some time.

Financial Select Sector SPDR Financial ETF (NYSE: XLF) offers exposure to the sector.

XLF is in an up trend and could provide additional gains as financials rally.

Warren Buffett’s Biggest Winner in 2017 Is This Surprising Under-the-Radar Stock

Berkshire’s largest holdings have been a mixed bag in 2017. Its biggest winner was the under-the-radar Moody’s (NYSE: MCO), up a staggering 59% this year.

Buffett has owned Moody’s for decades. He toughed out a major drawdown in 2008 and was rewarded with a huge (more than 870%) rebound since. It took improved earnings and a tripling of MCO’s P/E to accomplish that feat.

Source: The Street

Why this matters to investors: MCO shows that large cap stocks can deliver extraordinary gains. From low to high, the stock gained more than 1,000% in less than ten years.

 

This lesson could be applied to Wells Fargo (NYSE: WFC), another beleaguered Buffett holding, in the future.

Dow’s Merck Announces $10 Billion Buyback, Increases Dividend

Dow stock Merck (NYSE: MRK ) announced a $10 billion stock buyback Tuesday and will raise its quarterly dividend by a penny to 48 cents, citing its “strong balance sheet” and consistent performance. The board increased the quarterly dividend from 47 cents per outstanding share paid last quarter. Merck will pay the dividend on Jan. 8 to shareholders of record at the close on Dec. 15.

Merck last announced a dividend increase in November 2016 when the board upped the payment to 47 cents from 46 cents per common share. The board also authorized an additional $10 billion of treasury stock purchases with no time limit for completion, according to a press release.

Source: Nasdaq

Why this matters to traders Buybacks have been a bullish factor for the stock market and MRK’s buyback program could be a significant factor in the stock’s price for some time. The stock has been in a decline for the past few weeks and this news could provide support.

Income investors could find MRK attractive at this level.

Cyber Monday becomes largest online shopping day in US history

Digital transactions on Monday reached a record $6.59 billion, Adobe Insights unveiled Tuesday in its final update on the holiday weekend. That marks a 16.8 percent increase from a year ago and makes Monday the largest online shopping day in U.S. history.

Mobile also had a record day, Adobe found, saying smartphones have become the “de facto device” for on-the-go shopping. Mobile sales on Cyber Monday reached $2 billion for the first time. A record $5.03 billion was spent online during Black Friday, an increase of 17 percent when compared with last year, Adobe found. Top-selling items that day included the Nintendo Switch, Hatchimals, L.O.L. Surprise and ride-on cars for kids.

“People are really figuring out how to use their mobile devices,” Mickey Mericle, vice president of Adobe’s Marketing and Insights division, told CNBC’s “Squawk Alley” Monday afternoon. “And retailers are figuring out how to optimize … for mobile,” she added. “We’re seeing the two come together.”

Source: CNBC

Why this matters to traders: Finding winners and losers in the sector can be difficult. SPDR S&P Retail ETF (NYSE: XRT) could provide a low risk way to trade the sector.

XRT has been beaten down and appears to be forming a bottom. The ETF could be attractive to value investors.

North Korea Fires a Ballistic Missile

North Korea fired an intercontinental ballistic missile on Tuesday that flew both higher and longer than previous such launches, a bold act of defiance against President Trump after he put the country back on a list of state sponsors of terrorism.

The president reacted cautiously to news of the launch, stating, “It is a situation that we will handle.”

But Defense Secretary Jim Mattis expressed greater concern, emphasizing what he said were technical advances on display in the 53-minute flight, which began when the missile was launched northeast of the capital, Pyongyang, and ended nearly 600 miles to the east, when it landed in the Sea of Japan.

“It went higher, frankly, than any previous shot they’ve taken,” Mr. Mattis said in the White House, where he was taking part in a budget meeting with the president and Republican congressional leaders.

Source: New York Times

Why this matters to traders: North Korea’s aggressive actions could roil South Korean stocks. The market appears to be overextended after a rally.

Put options on iShares MSCI South Korea ETF (NYSE: EWY) could provide a profitable opportunity if the situation in North Korea remains tense.

 

 

 

 

 

While reviewing potential investment opportunities, many investors consider the yield. The yield for a stock is exchange traded fund (or ETF) is the amount of income distributed to investors.

For stocks, the distribution is usually a dividend. For an ETF, which is an investment portfolio that holds other individual investments, he distribution could be in the form of dividends, capital gains or, in some cases, a return on investment. Each has a different tax treatment and that is important to consider.

Tax treatment can be important to consider because it can be more expensive to file returns that involve more than dividends or capital gains. These factors point to the need to do research when considering buying an ETF that invests in anything other than a plain vanilla stock market index.

But, even before considering the tax implications, investors should consider the sustainability of the yield. In a scan of ETFs, sorting by yield from highest to lowest, the top five are shown below. The highest yielding ETF reports an annual yield of 86%.

Source: EFTDB.com

High yields like this present a problem. First is the tax problem. Investors are taxed on the distributions. Assume an ETF pays a similar amount this year and you buy at the current price. For this example, consider buying 100 shares for $1,272.

The payout of about $10.93 would reduce the value of the ETF by $10.93 and create taxable income of $1,093 for some investors who hold the ETF in a taxable account. Assuming a 20% state and federal tax rate, the investor loses $218.60 to taxes. The real amount could be more.

After taxes, the investor owns 100 shares valued at $179 and has a cash balance of $874.40. The investment immediately lost 20%, or whatever the individual investor’s actual tax rate is.

High Yields Are a Warning

The highest yielding ETFs in this example may or may not make a large distribution this year. But, the fact that they did create large tax liabilities for investors in the past is a red flag that should not be ignored.

High yields like this seen above are usually related to unique events. For example, the gold explorers fund might have switched the index tracked which required making a large number of trades and passing on capital gains to individual investors.

When considering where to find the best return on investment, taxes must be considered because the best returns are actually those that deliver large gains that investors can keep.

For stocks, a high dividend yield is also a warning sign. This was a lesson many investors learned in the financial crisis of 2008 and 2009. The chart of Bank of America (NYSE: BAC) shown below provides an example.

The dividend yield is shown in the center of the chart. The vertical grey line shows the yield moved above 10% as the price of the stock fell in 2008. Shortly after that, the amount of the dividend, shown as the blue line at the bottom of the chart, was reduced.

High yields, whether in ETFs or stocks, are a sign of risks to smart investors.

To Find High Returns, Stick With What Works

While investors will often seek out high investment returns and accept significant risks, history already tells us what works in the long run. Simply put, owning stocks is the best way to generate high rates of returns on investments.

The chart below is from the Credit Suisse Global Investment Returns Yearbook and shows that stocks deliver the largest gains in the long run.

Source: Credit Suisse

The chart above shows the returns on US assets. Credit Suisse reported on 21 countries which had a continuous record of returns dating back 117 years. To make returns comparable across countries, they adjusted for inflation.

After inflation, US stocks delivered an average annual gain of 6.4%. Just one country did better than that. Australian stocks averaged an annual gain of 6.8%. The worst performer was Austria with an average annual gain of 0.8%.

Bonds provided an after inflation return of 2% or less and short term government bills maturing in less than one year consistently averaged a return of less than 1% across the international database.

Over short time frames, returns can vary considerably but stocks are consistently the best performers with bonds lagging in wealth creation around the world.

It is interesting to note that over the full 117 years, fixed income investments averaged negative returns in Austria, Belgium, Finland, France, Germany, Italy, Japan and Portugal. In 38% of the countries, fixed income investors suffered a real loss of buying power in the long run.

Which Stocks Did Best?

Now, focusing solely on the US, there are several ways to divide stocks. We can consider stocks by size, value and momentum.

First, let’s consider size.

The chart below shows that smaller is better for stocks. The gains from micro cap stocks is significantly better than the gains of large caps. Over time, this difference compounds dramatically and micro caps deliver 11 times the gains of large stocks.

Source: Credit Suisse

Next is the question of value.

The next chart summarizes the results of a study that split stocks into two groups. The first group is stocks that are undervalued and the second group is stocks that are overvalued. Undervalued stocks, as a group, performed 18 times better than overvalued stocks.

Source: Credit Suisse

To determine value, the study summarized in the chart above used the book to market ratio. This is the inverse of the more commonly known price to book (P/B) ratio. Academic studies use the former ratio while investors tend to use the latter.

Investors generally look for a low P/B ratio to find value. In studies, a high book to market ratio (which is the inverse of the P/B) ratio shows value. Results are the same for either ratio.

Finally, we can look at how momentum affects returns.

This research is summarized in the chart below and it shows stocks with high momentum outperform stocks with low momentum.

Source: Credit Suisse

To find momentum, this study calculated the stock’s return over the past six months, ignoring the most recent month. They then sorted from high to low. The highest value of momentum were considered to be winners in the chart above and low values of momentum were considered to be losers.

The calculations were repeated every six months. The results above show that winners delivered gains that were about 585 times better than losers.

Putting It All Together to Maximize Your Investment

When searching for the best investment returns, history tells us that investors should focus on stocks that are small, offer value and are going up. These stocks benefit from the market beating factors shown above.

There are actually a number of ways to do this. Investors can screen for all of these factors and buy stocks that meet all three criteria. Or, investors can focus on just one of the criteria and their portfolio is still likely to outperform the broad market.

One possible screen would be to look at stocks in the smallest 20% of the market when ranked by market cap. Then sort this list for value, looking at only the stocks which have a P/B ratio in the bottom 20% of the group of smallest stocks.

Finally, this screen would rank the short list of stocks that passed both size and value tests by momentum. Buying only the best performers from that short list should consistently deliver market beating results in the long run. 

To learn more about how you can gain financial independence, click here, as we have new products coming your way soon!

 

 

 

Trump administration sues to block AT&T-Time Warner merger

AT&T’s (NYSE: T) gotten out ahead of an expected Justice Dept. announcement that it’s suing to block an AT&T-Time Warner (NYSE: TWX) merger, saying the suit is a “radical and inexplicable departure from decades of antitrust precedent.”

“Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market,” says AT&T General Counsel David McAtee II. “We see no legitimate reason for our merger to be treated differently.”

The deal will make TV more affordable, innovative, interactive and mobile, he goes on. “Fortunately, the Department of Justice doesn’t have the final say in this matter. Rather, it bears the burden of proving to the U.S. District Court that the transaction violates the law. We are confident that the Court will reject the Government’s claims and permit this merger under longstanding legal precedent.”

Source: Politico

Why this matters to traders: According to AT&T, the vertical merger would benefit consumers by making TV more affordable, innovative, interactive and mobile.  The government argues that given control of Turner Broadcasting, AT&T would benefit from higher prices and lower competition. Experts are split on how the court battle will be resolved.

Shares of TWX sold off sharply on the news.

Shares of T were under selling pressure even before the announcement.

Bargain hunters may find more value in TWX, for now.

Mexico to raise minimum wage…to $4.70 a day

Nearly 25 million Mexicans are getting a pay raise next week. From $4.25 to $4.70 — a day.

Mexican government and business leaders agreed on Tuesday to raise the country’s minimum wage starting on December 1 to 88.36 pesos from 80.04 pesos. The 10% raise is good news for 24.7 million Mexicans who work either one or two minimum wage jobs.

For Mexican workers, the wage hike is much needed as rising prices have weakened Mexicans’ purchasing power for nearly two years, the Mexican peso has hovered around its all-time low, roughly worth five cents. Seen the other way, one dollar has been worth between 18 and 22 pesos since early 2016.

Source:  CNN Money

Why this matters to traders: Mexico has a clear advantage to attract jobs. This could make an ETF tracking the country’s stock market attractive.

iShares MSCI Mexico (NYSE: EWW) is also moving higher after meeting the target of a small head and shoulders pattern. This is bullish from a technical perspective.

Buffett loves Coke. But will he back a Pepsi buyout?

Warren Buffett often jokes that he gets a quarter of his daily caloric intake from Coca-Cola. But an investment firm is suggesting that Kraft Heinz, which Buffett’s Berkshire Hathaway owns a nearly 27 percent stake in, may want to buy Coke rival Pepsi. Fixed income research shop CreditSights said in a report this week that Kraft Heinz (Nasdaq: KHC) appears to still be itching to do a deal.

European consumer products conglomerate Unilever (NYSE: UL), the owner of Lipton and Ben & Jerry’s as well as the Dove brand of personal care goods, rejected a more than $140 billion bid from Kraft Heinz earlier this year. The CreditSights analysts noted that Buffett has already ruled out the possibility that Kraft Heinz could buy Mondelez (NYSE: MDLZ), the Oreo and Cadbury owner that split from Kraft Foods in 2012. (Kraft Foods subsequently merged with Heinz in 2015.)

So, Pepsi could be Kraft Heinz’s next target. But the thought of Buffett switching teams, so to speak, and backing a Kraft Heinz deal for Pepsi (NYSE: PEP) might come as a surprise to those who follow the Oracle of Omaha closely.

Source: CNN Money

Why this matters to traders: This rumor seems unlikely to be possible given the increased regulatory scrutiny seen in the AT&T deal. But, even without a deal, the chart of PEP looks appealing from a technical perspective.

The stock seems to be breaking out of a recent consolidation and could make a short term move to the up side.

GameStop (GME) Q3 Earnings Top, Raises Comps View, Stock Up

GameStop Corp. (NYSE: GME) reported robust third-quarter fiscal 2017 results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. However, the big take away from this quarter was that earnings improved year over year after witnessing a decline in the trailing two quarters.

The company’s shares, which have witnessed a sharp decline of 26.2% in the past six months, underperforming the industry ‘s gain of 8.1% took a sharp U-turn following the result. The stock gained 7.6% during the after-hour trading session on Nov 21.

The company recorded adjusted earnings of 54 cents per share that comfortably beat Zacks Consensus Estimate of 43 cents and also increased 10.2% from the year-ago period. Net sales were up 1.5% year over year to $1,988.6 million and surpassed the consensus estimate of $1,958 million.

The company’s sales were driven by robust demand for Nintendo Switch along with collectibles and software. International sales were also strong during the quarter. The company stated that new console hardware as well as collectibles will drive holiday season results. Further, the company expects robust demand for Nintendo Switch during the holiday season.

Source: Nasdaq

Why this matters to traders: The stock has been beaten down to he point where the 5% rally on the news is barely visible on the weekly chart.

GME is well positioned for the holiday shopping season and could be among the biggest winners if consumers spend as much as anticipated.

How Does Holiday Shopping Impact Stocks?

The National Retail Federation has estimated sales for the 2017 holiday season could increase between 3.6% and 4% versus 2016 sales—a solid number which is slightly above the post-crisis average of 3.4%. But what do holiday shopping forecasts mean for the stock market (and the retail sector in particular)?

Stock market performance from mid-September to mid-December has historically had a high correlation with year-over-year increases in holiday retail sales. The S&P 500 Index has already gained approximately 4% since September 15, and retails sales estimates for the holiday season may give investors another reason to be optimistic.

As the chart below shows, retail seasonality doesn’t necessarily follow the shopping schedule of consumers. Since the financial crisis, the S&P Retail Select Industry Index (which includes both online and brick-and-mortar retailers) has performed well heading into the holiday season as analysts start to develop holiday shopping estimates and investor optimism rises. However, the index’s performance during December and January has historically been lackluster as stocks in the index tread water ahead of retailer earnings.

February and March have been two of the strongest months on average for the index since 2009, as retailers generally release holiday season earnings over this period.

Source: LPL Research

Why this matters to traders: Bargain hunters may want to look at some of the stocks in the retail sector or at SPDR S&P Retail ETF (NYSE: XRT).

If seasonal trends occur as expected, this ETF could deliver a significant gain over the next three months.

 

 

Many investors are looking for the best investment opportunities. They want to know which of the many available investment options are best for them. Of course, there is no right answer. The best option depends on your personal circumstances. But, there are some guidelines.

First, Look at Debt

The first step in the hunt for what is the best investment option is to consider potential returns. For example, many investors, if not all investors, would like the chance to earn 16.7% guaranteed for a year. Well, if you carry a balance on your credit card, paying that down will be the best way to earn a large best return on investment.

Over the long run, stocks deliver an average gain of about 10% a year. The exact number used in the average depends on the time period used in the calculation and whether or not dividends are included in the return.

After years of low interest rates, fixed income investments are starting to look better but rates on Treasury bills maturing in one year are about 1% and rates on diversified long term corporate bonds are less than 3%.

Given these alternatives, it could be best to pay off debt, especially any debt that carries a high interest rate.

Then, Look at Your Risk Tolerance

The next step in searching for the best investment option is to consider the risk you are willing to accept as an investor. This is an important, but often overlooked step.

Financial advisers often ask potential clients to complete a questionnaire to help assess their level of risk tolerance. It is a bit of a joke in the industry that the test results are not important in a bear market. Experienced advisers often see that clients are aggressive in bull markets and conservative in bear markets.

This is a natural reaction for investors. It is true that in a bull market, investors will normally want to maximize their gains and in a bear market, many investors will be worried about preservation of capital. On average, this might sound as if investors are moderately aggressive or moderately conservative.

However, there isn’t really an “on average” degree of risk tolerance. If an investor panics and sells at the bottom of a bear market, they may not participate in the subsequent recovery. Therefore, it is important to think of risk in a worst case scenario.

If you are uncertain you can accept any degree of loss, you should invest conservatively. In this case, short term fixed income securities could be the best investment option.

If you are willing to take a long term view and accept that there will be times when your account suffers significant losses, a more aggressive portfolio could be best. The key to selecting the best investment option would be to find a strategy that you will stick with.

After Defining Risk Tolerance, Think About Potential Rewards

This is where many new investors make their mistake. They think about rewards before considering risks. This is a common problem no matter what the potential investment is.

To see how this problem develops, consider an opportunity to invest in a multilevel marketing program. This is the type of investment where an individual buys into a company, obtains some level of inventory they can sell and earns money by recruiting others to sell the product.

Many companies using this marketing strategy stress the potential rewards of the sales opportunity. They sell a vision of being able to afford the lifestyles of the rich and famous. They ignore the risks associated with being unable to sell the inventory or attract new recruits to your time.

There are many legitimate opportunities in multilevel marketing. But, there are also some companies that oversell dreams and understate risks. This can happen with investing in stocks market or other markets as well.

Many financial advisers advise their clients to plan on realistic returns. But, many investors, in particular smaller investors, may not be comfortable accepting what they are told is a realistic rate of return. To understand what a realistic rate of return is, let’s look at what a large pension fund targets.

The California Public Employees’ Retirement System, or CalPERS as it is known, assumes their investment managers will deliver an average annual rate of return of 7%. This is a fund with more than $300 billion in assets and access to the very best investment managers in the world.

This is a baseline for what is possible, and perhaps even probable, for conservative investors. Since risk and return are highly correlated, the only way to achieve a return that averages more than 7% a year is to accept more risk than CalPERS does.

This could serve as a starting point for individual investors. The table below summarizes the target asset allocations for the CalPERS investment portfolio.

In broad terms, this portfolio allocates about 59% of assets to stocks, 19% to bonds, 14% to real estate and other real assets, 6% to inflation hedges and maintains about 2% of assets in cash.  On average, the managers of the fund expect the returns to average 7% over the long run.

Can You Get Better Returns?

In order to pursue larger returns, an investor will have to accept greater risks. This most likely means allocating more funds to the stock market.

Is the best investment option for an individual seeking to maximize returns to be 100% invested in stocks? Probably not.

The best option could be a mix of liquidity and stocks, even for a very aggressive investor seeking large gains. Liquidity can be thought of as savings. This could be an amount that would cover living expenses for a period of 3 to 12 months, with shorter time periods suitable for the most aggressive investors.

Liquidity investments could be bank savings accounts, Treasury bills or money market funds. It should be something that is nearly risk free and readily available in case it is needed.

Once that money is set aside, an investor could pursue gains in the most aggressive manner they are comfortable with.

Investment Options for Stock Market Investors

When considering stock market investments, it will still be important to consider risk tolerance. Very conservative investors would probably be best served by index funds. These are low cost investment options that buy and hold the stocks in major market indexes like the S&P 500.

Investors with slightly more risk tolerance could add index funds that track more aggressive indexes like the Russell 2000 which tracks small cap stocks or the Nasdaq 100 which tracks technology stocks.

Very aggressive investors could consider options on stocks. This investment opportunity requires some degree of effort to understand. Options allow investors to benefit from markets that go up, down or sideways. They also allow small investors to purse large gains since options generally cost very little.

Source: Wikipedia

This highlights another point to consider when deciding which investment option is best for you. More aggressive strategies will often require more of a time commitment than less aggressive strategies. Options all expire and action is often required to close trades. These are not buy and hold investments.

But, options can deliver outsized gains. It could be possible to generate returns of 10% a month using options strategies. These strategies make it possible to compound wealth quickly, allowing individuals with just a few years to retirement to potentially amass savings that provide financial security.

The best investment option is the one you are comfortable with, have the discipline and time to implement and follow and meets your ultimate objective of wealth accumulation.

 

 

 

 

 

Canadian marijuana investors cheer dollar-per-gram tax proposal

Recently, the country’s Department of Finance reiterated the government’s commitment to legalizing the drug for recreational use. It also laid out a plan to levy an excise tax on cannabis products at 1 Canadian dollar per gram (USD $0.79) or 10% of the sale price, whichever is higher. The proposal sent shares of Canadian marijuana companies soaring.

Source: CNN

Why this matters to traders: Marijuana is a speculative sector in the market right now and the charts of some stocks in the sector have the same look as the charts of cryptocurrencies with large gains. Pure plays in the sector include Canadian stocks like Aurora Cannabis (TSX: ACB), a company with a market cap of more than $1.2 billion. The company produces dry cannabis and is licensed to sell cannabis oil.

Aphria Inc. (TSX: APH) is almost a billion dollar company with a market cap of about $990 billion. Aphria claims to be one of the lowest cost producers of marijuana. The company produces dry cannabis and cannabis oil and sold a reported 852 kilograms (1,874 pounds) of product in the three months ending in August 2017.

Billionaire investor George Soros dumps Apple, Snap stock but boosts stake in Amazon, Microsoft

Soros’ investment fund dumped its stock holdings in Apple (Nasdaq: AAPL) and Snap (Nasdaq: SNAP) in the last quarter, a U.S. Securities and Exchange Commission filing showed. Soros Fund Management also reduced stakes in Facebook (Nasdaq: FB) and Twitter (Nasdaq: TWTR) but the hedge fund boosted its stake in Amazon (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT).

Source: CNBC

Why this matters to traders: While traders have been watching social media stocks like Twitter and Facebook closely, Microsoft has been in a strong up trend and continues setting new all time highs. The company has demonstrated an ability to compete for web services and continues integrating its Office products into more applications. MSFT offers income, along with growth, for investors.

President Trump Turns Into Stock-Exchange Pitchman

Trump’s tweet urging Saudi Arabia to list its national oil company on the New York Stock Exchange further complicates Aramco IPO. President Donald Trump on Saturday lent his voice to one of the thorniest issues surrounding the giant planned initial public offering of Saudi Arabia’s national oil company, urging the country to list the shares on the New York Stock Exchange.

Source: The Wall Street Journal

Why this matters to traders: Aramco is expected to be the largest listing in the world and adds prestige to an exchange. This could boost the stock of Intercontinental Exchange, Inc. (NYSE: ICE). The stock has been moving steadily higher as the bull market boosts trading volume and exchange profitability.

Food stocks jolted by more Whole Foods price cuts

A new round of price cuts at Whole Foods (NASDAQ:AMZN) is creating another ripple in the food sector. The grocery store chain is reported by CNBC to have dropped prices on holiday food items, including organic turkeys. There is also an increase in Whole Foods discounts for Prime members for the sector to consider.

Source: Chicago Booth Review

Why this matters to traders: The grocery sector is famously competitive. This could weigh down the stocks of competitors like Kroger (NYSE: KR) which has been under pressure for the past two years.

Producers could also be squeezed if Amazon demands lower prices so that Whole Foods can pass the savings on to its customers. In this sector, companies like J.M. Smucker (NYSE: SJM) have also been under selling pressure for some time.

SoftBank Plans Up to $25 Billion in Saudi Investments

SoftBank Group Corp. plans to invest as much as $25 billion in Saudi Arabia over the next three to four years as the Japanese company run by Masayoshi Son deepens investment ties with the kingdom, according to people familiar with the matter.

Source: Bloomberg

Why this matters to traders: The Aramco listing cited above could boost the fortunes of Saudi Arabia. Large investments like the one from SoftBank could also boost the country’s economy. Investors in the US can gain exposure to that market through the iShares MSCI Saudi Arabia Capped ETF (NYSE: KSA).

Investors could also consider an investment in Softbank which remains significantly below its all time high reached at the peak of the Internet bubble.

Qualcomm invests in Chinese AI facial recognition startup SenseTime

Reuters reported earlier in November that SenseTime plans to raise about $500 million in a new funding round, in what would be the biggest ever such fundraising by an AI startup. The fundraising will value SenseTime at about $2 billion and has drawn interest from prospective investors, including Singapore state investor Temasek, the report said.

The startup is one of several AI facial recognition firms in Greater China that are rapidly raising capital from local and foreign investors amid a multibillion dollar global drive to develop advanced facial recognition technology.

Source: Reuters

Why it matters to traders: This deal indicates Qualcomm (Nasdaq: QCOM) understands the need to diversify its business. The company has more than $35 billion in cash on its balance sheet that could be used to invest in new technology companies. These initiatives could allow the company to redefine itself and reduce its reliance and Apple, a relationship that has weighed on the stock in recent months.

Sports Illustrated TV: Time Inc.’s First Subscription VOD Is $5 Monthly on Amazon Channels

Time Inc., in another big bet on pivoting its business toward video, is launching Sports Illustrated TV, its first over-the-top subscription-video service.

SI TV, priced at $4.99 per month, will be available starting Nov. 16 on Amazon Channels. The service has a lineup of 130 hours comprising licensed movies and documentary films — including the first five “Rocky” pics, 1975’s “The Bad News Bears” and 1979’s “North Dallas Forty” — along with a few original docu-series and talk shows.

Source: Variety

Why it matters to traders: For now, the channel will be different from traditional cable sports channels like those from ESPN and Fox Sports: It won’t broadcast live games, the staple of other sports networks, nor will it have a highlights/recap show a la “SportsCenter.”

However, the channel adds to the pressure on The Walt Disney Company (NYSE: DIS), the parent of ESPN.

Assuming SI TV succeeds, Time Warner could compete directly for the dwindling number of viewers watching sports on television.

Shell to sell stake in Australian group Woodside Petroleum for $1.7bn

Royal Dutch Shell has agreed to sell down almost two thirds of its remaining stake in Australian energy group Woodside Petroleum for $1.7bn. The Anglo-Dutch energy company said in a statement on Monday it had entered into an underwriting agreement with two investment banks to sell 71.6 million shares, 64 per cent of Shell’s interest and 8.5 per cent of Woodside’s stock, at a price of A$31.10 a share, resulting in pre-tax proceeds of around $1.7 billion.

The disposal, which the company said would help reduce net debt, is part of a $30 billion divestment by the oil giant as it seeks to improve its financial performance.

Source: Financial Times

Why it matters to traders: Royal Dutch Shell plc (NYSE: RDS.A) has been an up trend for more than a year. The stock is nearing its 2014 highs, despite the fact that the price of oil has failed to recover.

The stock offers investors a yield of about 5.8% and management has demonstrated its commitment to focusing the business. This should allow the dividend to increase in time and reward patient investors looking to be paid to wait for a bull market in oil.

 

 

 

When building a portfolio, many investors consider, in broad terms, how to allocate their funds. This makes sense because funds are limited while potential investment choices are almost unlimited. Some restrict this process to allocating a percentage of assets to stocks and bonds.

This approach can help reduce risk. In this case, risk is defined as the volatility of returns. In other words, asset allocation is a process intended to reduce volatility. It does not specifically address the risk of loss. In an investment account, some losses are inevitable.

Diversification attempts to reduce the volatility of losses. It does not seek to completely eliminate losses. It evens out the downside risks, in theory. This benefit explains the popularity of the 60/40 portfolio many investors adopt in retirement.

The 60/40 portfolio allocates 60% of funds to stocks and 40% to fixed income investments. There are a lot of decisions to make regarding the allocation within each sleeve of the portfolio but overall, this strategy is widely accepted as less risky than all stocks and potentially more profitable than all bonds.

The Problem Is Inflation

The 60/40 portfolio works well over a long time horizon. In the long run, much of the data we look at for the economy “evens out” with periods of high inflation followed by periods of low inflation, for example.

But, many investors don’t have a long time horizon to allow things to even out. If high inflation develops, we could expect interest rates to rise. This could have a devastating impact on bond investments.

For example, iShares 7-10 Year Treasury Bond ETF (NYSE: IEF) is a popular ETF for fixed income investors. This ETF offers a yield of 1.8%. If interest rates rise by 1%, the ETF should be expected to decline about 7.5% in value. This is more than 4 years’ worth of income.

In a high inflation environment, we would also expect stock prices to suffer. They could fall or deliver below average performance. Either outcome could be harmful to a retiree or anyone preparing to retire one day, or just about any investor.

Gold May, or May Not Shine

Gold is often viewed as the ultimate hedge against inflation. For that reason, some investors allocate part of their portfolio to gold as a hedge against inflation. But, there is no way to know if gold will move up when inflation strikes. It may, and it has in the past. But, gold has also lagged in the past.

The chart below shows the percentage changes in the price of gold and the S&P 500. Gold is shown as the gold colored line. The price of gold, in this chart, is the price set in the London market every morning for delivery of physical gold.

You can see that stocks have usually delivered better returns than gold. From January 2009 through June 2013, gold delivered better long term gains than stocks. This may be surprising but it is the nature of markets that price moves will deliver unexpected results.

As the chart above shows, in the last bear market, gold delivered a degree of protection for long term investors who bought gold in the early 1990s. But, that is a lot of variable. Gold did not do as well in the previous bear market that accompanies the end of the Internet bubble.

There’s a Place for Gold and Another Hedge

Should i invest or own in commodities, Most investors own more than one stock. They do this to limit risks and believe that diversification is an important component of their investment strategy. This is also true for fixed income investments. Again, investors diversify their bond holdings.

To diversify bonds, investors consider risks associated with time and the chance of default by the bond’s issuer. This shows that there is often a great deal of thought put into diversification. But, when it comes to inflation hedges, investors often choose gold or gold and silver.

There is actually one investment that provides a diversified approach to protecting a portfolio against periods of high inflation. That investment is a diversified basket of commodities.

This is especially true when commodities are beaten down and attractive as a value investment. The chart below shows PowerShares DB Commodity Index Tracking Fund (NYSE: DBC). The price is near multiyear lows.

Before investing in a commodity ETF, it is important to know what the ETF is and how it works. This ETF is a rules-based index composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world.

The ETF buys and sells exchange traded futures rather than derivatives on those instruments like many other commodity ETFs do. DBC and the index that it tracks are rebalanced and reconstituted annually in November. For now, the index has a high degree of exposure to energy.

Source: Invesco

With DBC, an investor is largely obtaining exposure to the energy markets since this sector is likely to dominate the performance of the fund. Within the energy sector, there is a high degree of correlation between the components which include oil, gasoline and heating oil which are derived from crude oil, and natural gas which is often a buy product of crude oil production.

The diversification, the fact that about 45% of the fund’s return will not be directly correlated with the energy sector, will be useful at times. However, this example shows why it is important to know exactly what an ETF is holding before owning it.

Consider Your Investment Choices

Another popular commodity ETF is the iShares S&P GSCI Commodity-Indexed Trust (NYSE: GSG). This fund tracks the Goldman Sachs Commodity Index and is also overweight in the energy sector. In fact, GSG provides even more weight to the energy sector than DBC with 62% of its holdings in that sector.

One of the less popular ETFs, the WisdomTree Continuous Commodity ETF (NYSE: GCC), could provide the best choice for diversified exposure to commodities. This fund holds less than 12% of its assets in the energy markets.

Source: WisdomTree

GCC reports assets under management of about $160 million. This is relatively small but the fund sponsor has a history of maintaining access to its funds when they reach this size.

The size of an ETF, measured by the amount of money under management, is important for investors to consider. Fund sponsors are, of course, providing access to the funds so that they can collect management fees and earn a profit.

Small ETFs have a history of folding. This is because continuing to offer the fund is simply not profitable for the sponsor. In order to be profitable, a fund would need to cover fixed expenses which include listing fees, accounting, auditing and custodian fees in addition to paying a manager.

When a small fund is dissolved, share holders can be hit with large, and unexpected, tax bills if the fund simply liquidates its positions. Therefore, it is important to consider whether or not an ETF is likely to survive when making an investment decision.

Given the choices, investors need to decide what is right for them. As an inflation hedge, some will want gold. This could be a gold ETF, through gold mining stocks or with physical gold. Others will want a diversified commodity portfolio.

If selecting a diversified commodity portfolio, consider the holding of the ETF before buying and understand what it provides exposure to. Instead of DBC, for example, it could be best to hold GCC and an ETF that tracks oil. This could provide diversification and exposure to energy.

 

 

Venezuela seeks to restructure debt

Venezuela’s Nicolas Maduro has announced plans to make one final $1.1B principal payment today for a bond issued by state-owned oil company PVSDA. The country would then aim for a restructuring and refinancing, although it has few avenues to do so because of U.S. sanctions. Estimates of Venezuela’s total outstanding debt vary, with some analysts putting the figure between $100B-$150B.

Source: Reuters

Why this matters to traders: Goldman Sachs (NYSE: GS) is known to have some exposure to the country’s bonds. Goldman Sachs’ asset management division is likely to be nursing a multimillion-dollar paper loss on a controversial Venezuelan bond purchase it made this summer after the country abruptly announced that it was seeking to restructure its foreign debts.

Ricardo Penfold, a senior portfolio manager at Goldman Sachs Asset Management, earlier this year swooped on a big slice of a bond issued by PDVSA, Venezuela’s state oil company, people familiar with the matter say. Mr Penfold paid $865m for bonds with a face value of $2.8bn — a price of just under 31 cents on the dollar — reflecting the elevated risks of a default even at the time.

While GSAM has since sold off chunks of the bond, it was still listed as the single biggest overall owner of the PDVSA bond maturing in 2022, with a face value holding of $1.3bn at the end of the third quarter. The bond is now trading near 25 cents on the dollar, down from 29 cents at the start of last week. That would translate into a paper loss of $54m in just five days if GSAM has not reduced its stake since the end of the third quarter.

What’s the Cost When Two Big Hurricanes Hit the Power Grid? $2.5 Billion

The nation’s power utilities are just beginning to understand the costs of Hurricanes Irma and Harvey. NextEra Energy, the owner of the largest utility in Florida, estimated $1.3 billion in damages last week. Duke Energy estimated $500 million in damages in Florida, Southern Co. estimated $150 million. NRG Energy put their costs at $40 million and Texas’ American Electric Power Co. put their costs at $250 million to $300 million. All told, about $2.5 billion.

Source: Bloomberg

Why this matters to traders: Utilities are among the most undervalued sectors in a stock market that is increasingly overvalued. The Utilities Select Sector SPDR ETF (NYSE: XLU) ETF has a price to  earnings (P/E) ratio of about 9.

The stock chart shows signs of a breakout from a technical perspective making this an attractive sector for value investors to consider.

Gulf Stocks Lose $6.8 Billion in 72 Hours Amid Saudi Purge

Saudi Arabia’s anti-corruption purge and deepening feud with Iran have spurred a selloff across Gulf stock markets to the tune of almost $7 billion, a sign of the volatility to come as governments in the region push ahead with reforms. The decline cut the combined market capitalization of bourses in the six-nation Gulf Cooperation Council to $910.7 billion, the lowest level in a year, according to data compiled by Bloomberg. Most major stock indexes in the region retreated on Wednesday, led by a 1.9 percent drop in Dubai’s DFM General Index, the steepest in a year.

Source: Bloomberg

Why this matters to traders: There could be a strong recovery in the stock market if this matter is resolved. iShares MSCI Saudi Arabia Capped ETF (NYSE: KSA) offers exposure to the country.

This ETF has just a limited trading history and is relatively small and illiquid so it may be difficult to trade.

China, Goldman Sachs to invest $5 billion in U.S. manufacturing

China Investment Corp., better known as CIC, asked Goldman Sachs (NYSE: GS) to partner with it on the private-equity fund, which will deploy money into manufacturing, industrial, consumer, healthcare and other U.S. businesses, the source said. It’s not clear how much each firm will contribute to the fund. Goldman declined to comment, while CIC was not immediately available. News of the partnership, first reported by The Wall Street Journal, comes as Goldman Sachs CEO Lloyd Blankfein and other American business leaders join Trump this week in China and other Asian nations.

Source: CNN

Why this matters to traders: Traders could get direct exposure to US manufacturing with ETFs like iShares US Industrials ETF (NYSE: IYJ).

Over the past three years, this ETF has been more volatile than the broad market making it a possible option for conservative investors concerned about a pullback.

WeChat owner takes a big stake in Snapchat

Chinese tech giant Tencent has amassed a $2 billion stake in Snap NYSE: SNAP). The parent company of Snapchat said in a regulatory filing on Wednesday that Tencent and its affiliates have purchased over 145 million of its shares. That works out to a stake of just over 10%. Snap said in its filing that Tencent, which developed the hugely popular messaging platform WeChat, had informed the American firm that it “looks forward to sharing ideas.” Tencent is one of China’s biggest tech success stories. China Literature, an e-book company in which Tencent owns a majority stake, soared as much as 100% in its Hong Kong IPO on Wednesday.

Traders have been selling Snap after the company reported user growth is slowing and the Q3 loss more than tripled from a year ago. On a conference call following earnings, CEO Evan Spiegel revealed that Snapchat is working on a significant app overhaul even though it might be “disruptive to our business in the short term.”

Source: CNN

Why this matters to traders: The stock sold off more than 15% on the earnings news.

Bargain hunters might be tempted but options could be the best strategy to use with SNAP in order to limit risk.

Twitter changes character limit

After experimenting with longer tweets in September, Twitter (NYSE: TWTR) is now doubling its longstanding 140-character count to all languages where “cramming” was an issue. “In addition to more Tweeting, people who had 280 characters received more engagement, got more followers, and spent more time on Twitter,” the company said in a blog post. Users will see the change roll out over the next few days.

Source: Tech Crunch

Why this matters to traders:  The stock is beaten down and could be attractive to value investors.

Once again, options should be considered to limit the risks of the trade. This is a stock that has fallen sharply and shows signs of a potential bottom but is subject to risk that advertising could drop. The increase in character limits could change the use of the platform and alienate some users, a risk the company has taken in pursuit of growth.

Lowe’s

Lowe’s has unveiled plans to launch so-called stores within its stores, in a partnership with software-powered retailer b8ta, to sell and educate shoppers on smart home products. In addition to the 70 Lowe’s (NYSE: LOW) stores getting a complete “smart home” outfit, 1,000 locations will launch smart home displays ahead of Black Friday and the holiday shopping season.

Source: CNBC

Why this matters to traders: This move could boost sales at the retailer.

With the stock in an up trend, the news could be a catalyst to push prices to new all time highs.

UPS Joins Top Alliance To Create Blockchain Standards For Logistics

Blockchain may be well on its way to becoming the future of shipping and logistics after UPS (NYSE: UPS) joined the Blockchain in Trucking Alliance. “The technology has the potential to increase transparency and efficiency among shippers, carriers, brokers, consumers, vendors and other supply chain stakeholders,” said Linda Weakland, UPS director of enterprise architecture.

Source: UPS

Why this matters to traders: UPS has stalled in the past few weeks after a strong up trend.

It’s possible a significant change to operations could give the stock a boost in the next year.

 

 

 

Bitcoin and other cryptocurrencies might be the most exciting market in the world right now. But, they aren’t for everyone. To find out if they’re right for you, be sure you understand the basics of the market. This is true for any market but it’s especially true for speculative markets.

And, cryptocurrencies are a speculative market. Before looking at the market, let’s define what a cryptocurrency, or crypto, is.

A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature.

A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.

This is, in other words, a potential means of completing transactions in anonymity. That leads to potential concerns about illegal activities like using cryptos to buy illegal drugs, for example, or evade currency transfer laws.

This is possible, and it is also possible to complete illegal transactions with currencies backed by any government. This concern, however, could lead to regulation for cryptocurrencies and that could affect their value. Regulation could actually increase or decrease the value, depending on specifics.

That demonstrates where we are in this market. The absence of regulation means we are in the initial stages of the market. This could be the ideal time to take a position in the market to benefit from its increased acceptance.

But, there are always risks when investing in any market, especially one that is unregulated and still taking shape. That means caution is warranted but even with the risks, cryptos could be an acceptable investment for many investors.

That explains why some large investment firms, include Goldman Sachs, have taken an interest in the market.

Cryptocurrencies as an Asset Class

One way some investors think of cryptocurrencies is as a substitute for cash. Some of the currencies can be used for transactions. For example, it’s possible to use bitcoins to buy a Domino’s pizza.

In this way, cryptocurrencies are in line with what Warren Buffett believes money is. He realized currency is just a medium used to conduct business and is something that is agreed to have value. It could be paper as we use today, gold bars or even seashells.

Years ago, Buffett said, “Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola…”

But, bitcoin is also considered to be an investment. It has been among the best performing markets in the world over the past year.

Source: Intellicoins

Over the past six months, Bitcoin has gained more than 300%. Yet it is far from the top performing cryptocurrency. There are more than 1,400 cryptos trading according to one count. Several have delivered gains of more than 400,000% in six months.

Source: Intellicoins

Separating Speculating From Investing in Cryptos

The table above shows many of the current cryptos have very small market capitalizations and are thinly traded. This is important for traders to remember. Some of the cryptos are unlikely to survive in the long run. Small market caps and low trading volume are one sign that the crypto may not last.

Of course, bitcoin started small. To consider whether or not a cryptocurrency is likely to survive, it is important to consider the purpose of the coin. Near the top of the list of biggest gainers is ELcoin. This crypto has been around since 2015 and its purpose is:

The ELcoin functionality is similar to Facebook, providing users control of pages, including advertising-generated revenue. The system provides for the implementation of social networks protected against outside access, securities markets independent of stock exchanges, agreements that don’t require legal intervention, and other uses. Users maintain control without the cost of overhead and in a secure environment.

Confused? According to some potential traders, there are concerns about the business model underlying the cryptocurrency.

There is definitely a need for caution. When evaluating whether or not the cryptocurrency is likely to survive in the long run, consider how many of the functions of money the currency delivers. The functions of money are shown below.

Source: VisualCapitalist.com

Any cryptocurrency is likely to meet most of these requirements. Other than acceptability, all of the characteristics can be designed into the crypto. The difficult part is acceptability. This requires the most consideration.

Bitcoin is acceptable in a number of ways. Many cryptos are not. Among the least accepted cryptos is Dentacoin. This is described as “a way to improve dental health, cut out insurance companies as middle men, and foster cooperation between dentists and patients.”

Among the promises is one that the coin could be used to pay for dental services. But, there were recently just two dental practices in Europe that accepted the coins. If one of those two happens to be your dentist, this could be a great way to pay for services. If not, then the coin might not be worth much.

To avoid the problems like this, some experts recommend setting rules for investing. Among the most popular rules are:

• Follow the experts. There are a number of cryptos backed by well known tech titans. The venture capital fund Sequoia, for example, has investments in the area. These investments have been vetted by exprts and could offer the safest way to invest in cryptos.
• Set a minimum market cap and wait for the crypto to reach your minimum before investing in it. You may set a minimum of $100 million or even higher. Size is one way to identify potential acceptance of the crypto.
• Avoid cryptos that that are widely advertised. Advertising costs money and that means the developers are spending money on something other than development. This could be a sign that the developer’s objectives are profit driven rather than system driven.

Why Bother With Cryptos?

Despite the problems in this asset class, there is potential for profits. Older investors may recall the Internet bubble. It seemed that hundreds of companies began trading with a name that ended in “dot com” because that signified they did business on the Internet.

Many of those companies are gone. They destroyed billions of dollars of shareholder wealth. But, some survived. Amazon.com and Google began trading at that time and are now worth billions. Companies like Facebook and Netflix came later and delivered billions in wealth to their shareholders.

Now, we are in a repeat of that era in many ways. There are new cryptos arriving every day. Some will be winners, and some will be losers. In fact, it’s reasonable to assume that based on history the majority will be losers.

But, again based on history, it’s also reasonable to assume that in the long run, the wealth created by the relatively few winners will be worth more than the accumulated losses of the large number of losers.

The only way to participate in those gains is by trading cryptocurrencies. These should not be a large part of your portfolio. But, it is reasonable to allocate a small percentage of wealth to this asset class knowing that it could represent a larger percentage of wealth one day or could be a complete loss.

There’s unlikely to be a middle ground in cryptocurrencies. There will be big winners and 100% losses. But, all new financial innovations create billionaires. This one is likely to do the same.