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Monday Mailbag: Inflation Fears, Safe Havens, Climate Change… and More

Our readers seem to have a lot on their minds these days, as they express worry about inflation, the likelihood of a stock market correction, rising interest rates, climate change… even transgender bathrooms.

But as my sainted Greek grandmother used to say: “Worrying is like a rocking chair. It gives you something to do but it doesn’t get you anywhere.”

Below, I address some of your worries with practical advice.

Inflation rears its head…

“Do you expect rising inflation this year? It has been a long time since it was a concern.” — Nathan G.

Inflation is currently running at a meager 1% and has been extremely low for years, prompting investors to forget how inflation can ravage their financial security. But consider this: after 20 years, inflation averaging the Federal Reserve’s target of 2% would slash a dollar’s buying power to 67 cents.

The Federal Reserve has stated that it expects inflation to rise to at least 2% in 2017, as the temporary effects of past declines in energy and import prices fade and the labor market continues to strengthen.

Wages are rising, unemployment is falling, and the U.S. Commerce Department expects U.S. gross domestic product to grow by 2.3% this year, which is modest but sufficiently strong to sustain inflationary pressures.

A classic inflation hedge is gold, especially the stocks of gold miners. During past inflationary environments, gold mining shares rose faster than the inflation rate. Gold investments to consider: the SPDR Gold Trust Shares ETF (NYSE: GLD), an exchange-traded fund that’s a benchmark for the yellow metal, and gold miners Newmont Mining (NYSE: NEM) and Goldcorp (NYSE: GG).

Jim Fink, chief investment strategist of Velocity Trader, puts it succinctly:

The stock market has gone parabolic to the upside, which leads to greater volatility and increased uncertainty… Every portfolio deserves a gold hedge.”

The Fed’s pesky balance sheet…

“Utility stocks have performed well so far this year. When should I start to worry about rising interest rates?” — Rhonda S.

Rhonda, it’s logical for utility investors to closely monitor interest rates. The dynamic is easy to understand: as rates rise, utilities must pay higher costs on their loans for the capital expenditures that provide their future lifeblood. But despite rising rates, safe-haven assets such as utilities are benefiting from growing anxieties over geopolitical turmoil and the Trump administration’s scandals.

The Dow Jones Utility Average is up by about 6% year to date, slightly ahead of the broader market. However, you need to stick to the highest quality utilities and increase the hedges portion of your portfolio.

Ari Charney, chief investment strategist of Utility Forecaster, highlights the risks ahead:

“The Federal Reserve has more up its sleeve than just rate hikes. There’s still that pesky matter of its $4.5 trillion balance sheet.

The Fed is keen to pare its bond holdings, but even the slightest move could cause big ripples. Analysts estimate that a reduction in the central bank’s balance sheet would be equivalent to one to two rate increases.

Despite the utility sector’s performance so far this year, this is no time for complacency.”

Fluor goes with the flow…

The recent floods in North Carolina remind all of us about the devastating effects of climate change and extreme weather. Any investment plays come to mind?” — Bob H.

As federal, state and local spending on flood control and storm remediation ramps up, one company in particular stands to benefit: Texas-based Fluor (NYSE: FLR).

Fluor provides consulting, engineering and technical services for the water, environment, energy, infrastructure, and natural resources sectors.

Fluor’s clients include governmental agencies at all levels in the U.S., as well as commercial and public sector clients overseas. The company has cleaned up the mess in the wake of thousands of natural calamities such as hurricanes, tornadoes, floods, and earthquakes.

With a market cap of $6.3 billion and a pervasive nationwide presence, Fluor also stands to benefit if President Trump makes good on his promise to boost infrastructure spending, although in light of Trump’s current political woes, all bets are off concerning his domestic agenda.

The looming correction…

“Could you please provide your insights in the overall market correction that is being talked about? Some talk about Elliot Waves, some show other charts. It is very confusing. Thoughts? Are we bracing for a larger correction in May/June, especially with the VIX rising?” — Abhijit D.

Think of a market crash as a financial shout, for the hard of hearing. Many investors are ignoring the loud warning signs that this eight-year-old bull market is highly overvalued. My view is that a correction is likely this year and that’s also the consensus of our investment team. The stock market is long overdue for a pullback, which would present a buying opportunity for inherently strong equities.

I’ll let Jim Pearce, chief investment strategist of Personal Finance, elaborate:

“Yes, I still believe a correction is likely this year. Historically, the VIX tends to move simultaneously with stock market corrections, but not in advance of them, so I wouldn’t read too much into its currently low reading. If the FBI’s probe into Trump’s dealings with Russia escalates into a formal congressional inquiry, I would expect the VIX to spike and the stock market to slump at exactly the same time, regardless of what the technical indicators suggest.”

Taking shots at Target…

I’ve received a slew of letters from readers concerning Target (NYSE: TGT), especially in regard to the retailer’s accommodating policy on transgender bathrooms.

It all started with a letter from Patricia W. that I published in the May 8 issue. Patricia condemned Target’s bathroom policy as “an open invitation for perverted individuals and a gateway for predators.” She insisted that Target’s sales were suffering largely as a result of activists such as herself who are boycotting the store.

The following two letters are representative samplings of the responses concerning Target’s separate bathroom facilities for transgender shoppers:

“My wife and I agree with Patricia W. that the boycott has had a negative effect on Target’s stock price. Their wrong-headed decision resulted in us, formerly regular shoppers, to buy products elsewhere. We have not been in a Target store since they announced their decision and won’t return unless they reverse course.” — Michael and Debbie L.

“In my opinion no one cares about bathrooms at the Target stores. Most shoppers are in and out of the store in less than an hour and can surely hold their water for that long. Target is suffering from a similar malaise as Sears, Macy’s, and J.C. Penny.

Big Box retailers have no idea what to do to stem the tide, and they are trying this, that, and soon something else. I have been in a Target store, yes. But I have no reason to go there as I can buy food at a food store, and everything else they sell can be purchased elsewhere. Target is neither fish nor fowl. My opinion is that they will fade away under a debt load as they borrow money to try and fix what they don’t understand.” — Kent L.

Keep those letters coming! You can reach me at: mailbag@investingdaily.com — John Persinos

Jim Fink’s worry free trading method…

As this week’s mailbag shows, investor anxieties are rising. But Jim Fink, chief investment strategist of Velocity Trader, has taken the worry out of investing. Jim has developed a trading system that routinely leverages small stock movements into huge gains, regardless of broader market conditions. As he explains:

“I share my trades with a small group of investors who follow me step-by-step on each trade. Obviously, I’ve kept this to a small number of people so that these trades aren’t ruined by an entire crowd rushing into each trade.

The most interesting thing is that many of these investors are just everyday people who have never done something like this before, but that hasn’t kept them from learning my technique and using it to collect safe, outsized returns.”

By trading this way, Jim became a millionaire. Now he intends to help his followers get rich. Want to join in?

Click here now for his latest presentation.

 


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