Monday Mailbag: Correction Protection, Commodity ETFs, Tech Volatility… and More
Anxiety is the new depression. I saw a news story this week that an estimated 40 million Americans, about 18% of the population over the age of 18, grapple with acute anxiety, including more than half of all U.S. college students.
Dire reports about war, famine, political strife, and economic uncertainty travel around the globe at lightning speed, fueled by social media, smartphones and cable television. Anxiety — defined as incessant and overwhelming worry — is now 800% more prevalent than all forms of cancer.
I’ve certainly detected increased elevations of anxiety among reader letters, as dysfunction in Washington, DC, troublesome economic indicators and sky-high equity valuations weigh on the markets. Let’s see if I can calm some of those anxieties.
Getting ready for the big fall…
“I’m a senior citizen of 76 years with my pension money around $400K. I want to invest for a regular income so I can survive, support my family and pay my monthly bills. However, I am afraid that the market may be very close to a big correction and I can’t afford to lose what I have at my age.
I’m very fond of your daily newsletter and your sound advice. Please advise me how I should invest with full protection of my principal amount.”— Indy C.
Indy, the best way to make money over the long haul, even in dicey conditions such as we’re seeing today, is to buy the stocks of growing companies whose products and services are crucial to everyday life. It’s even better if these companies are tapped into unstoppable trends. This newsletter continually strives to follow this strategy.
The market could keep rising in coming months, but high valuations leave a shrinking margin of safety. And the tenuous nature of the recovery puts this aging bull in jeopardy.
More than ever, you should stick to high-quality stocks that boast inherently sound fundamentals. We don’t advise you to exit the market altogether, but you should pare back your exposure to growth stocks, raise your cash level, and make sure you’ve put ample money into hedges such as gold.
Our flagship publication Personal Finance currently advises the following portfolio allocations: 35% stocks, 30% hedges, 25% cash, and 10% bonds.
The black horse of famine…
“Well, I used to be a Sierra Club director in a small county down south. I never doubted the drying of the northwest and the extreme weather we’ve begun to see would happen. I’ve been following global warming since the early 1970’s in college and I’m not surprised that it’s here. Accordingly, I now live where there is an ample supply of fresh water and low population density.
Through hard work, I’m now lucky enough to be able to invest and I’m setting up my retirement. I read your article about commodity ETFs.
Both funds are down. I’m not too sophisticated, so I’m going to ask: Do they make money by betting on the future of the stocks in the fund? Do you have any other information you could share? Thank you for the article, by the way.” — Joe W.
Joe is referring to my June 27 issue, Hungry for Profit: 2 ETFs to Leverage the Coming Global Food Crisis.
I recommended the PowerShares DB Agriculture ETF (NYSE: DBA) and PowerShares DB Commodity Tracking ETF (NYSE: DBC). It’s true that the long commodities slump has pressured both funds, but that should soon change as commodity prices rebound.
These funds are composed of futures contracts on some of the most liquid and widely traded agricultural commodities. As I explained, the growing demand for food, especially in emerging markets, is a tailwind for these two ETFs.
Speaking of this topic, a reader email took me to task for supposedly equating the food riots in Venezuela with climate change: “The food scarcity in Venezuela has to do with the mismanagement and collapse of that country’s socialist government, not the weather.” (name withheld).
A more careful reading of my article would show that I referred to Venezuela as “unraveling” and I made a point of citing “political turmoil” and “political instability” as among the causes for food supply disruptions.
Virtual reality, real volatility…
“I read your article about HIMX. I bought shares as a long hold then noticed this stock began acting like a swing trade stock so I sold it a few times. What are your thoughts about this company today?” — Travis J.
Travis is referring to my May 25 issue, Welcome to The Matrix: VR/AR/MR Has Reached The Tipping Point.
Taiwan-based semiconductor manufacturer Himax Technologies (NSDQ: HIMX) is a member of the Growth Portfolio of Personal Finance. Himax supplies, or is expected to supply, display circuits to the most-popular headset brands.
As the virtual, augmented, and mixed reality (VR/AR/MR) market explodes, we continue to be high on Himax. It’s true, the stock has been volatile of late, but that’s to be expected in the technology sector.
Sales of Himax’s devices should take off once VR headsets and AR smart glasses achieve sufficient economy of scale to bring prices down to a broader segment of consumers. As the supplier of the chips that manage the displays in these devices, Himax stands to be among the component suppliers to benefit from increased sales.
Himax has 2,982 patents granted and 420 patents pending approval worldwide. In an industry dotted with tiny, fly-by-night start-ups, Himax boasts a solid balance sheet that will ensure its competitiveness even during unexpected economic shocks.
The stock has fallen nearly 16% over the past 12 months, but it has risen by nearly 37% year to date. If you can stomach the ride, we suggest that you hang on.
China invades the American home…
“You state that GE makes everything from kitchen appliances to jet engines. Surely GE sold off its appliance division several years ago. Maybe there are still GE branded appliances, but GE doesn’t make them anymore.” — Clive H.
Clive, you’re absolutely correct that General Electric (NYSE: GE) eventually sloughed off its home appliance division. But my article (June 19 issue) discussed the appliance division as it applied to the tenure of former General Electric CEO Jack Welch, who took over in 1981 when GE still made appliances.
GE Appliances was sold to China-based Haier Electronics Group (OTC: HRELF) for $5.4 billion in 2016, long after Welch was gone. Selling the appliance unit was a shrewd strategic move, as GE attempts to streamline its product offerings and jettison low-margin businesses.
For Haier, the advantages include a significant foothold in the vast U.S. consumer market and a roster of brand-name refrigerators, freezers, clothes washers and dryers.
Toasting Independence Day…
“It’s summertime, when I enjoy drinking beer at the ballgame or at a BBQ. What are your thoughts about Boston Beer? Is it a good seasonal stock?” — Peter I.
That’s a timely question, with the July 4 holiday upon us. A wave of consolidation among distillers has fed concerns that The Boston Beer Company (NYSE: SAM), which remains stubbornly independent, will fall behind as global behemoths co-opt the craze for boutique labels and wield greater production capabilities.
The threat also comes from the proliferation of new “small batch” breweries. The Boston-based company was a pioneer in the gourmet beer revolution, but competing brands with strong regional loyalties are now breathing down its neck.
And yet, Boston Beer has beefed up its marketing efforts and dug in for a fight. With a market cap of $1.6 billion, SAM boasts scale, a powerful brand, brewing expertise, and financial wherewithal. I like the stock and have faith that the company will prevail. (And I don’t just write that because I’m a Boston native.)
Making money from Uncle Sam…
The following email is in reference to my June 22 issue, Hungry for Yield? Snag This “Crash Proof” REIT.
“I saw your write up on DEA last week and it sounded very good to me. The guy who does my taxes would like me to have more like this one. I took on a position. Thanks very much for bringing it to my attention.” — Jon D.
I recommended Easterly Government Properties (NYSE: DEA), a real estate investment trust (REIT) that leases space to U.S. government agencies. With the vast federal government as a tenant, DEA is a recession-resistant, high dividend payer in a pricey overall stock market that’s poised for a correction. Glad to help you out, Jon.
Any comments or questions? Strong opinions are welcome (but keep it civil). You can find me at: firstname.lastname@example.org — John Persinos
It’s not just food riots in Venezuela. Social strife, terrorism fears and political rancor around the world have all combined to make this an anxious time to invest.
However, Jim Fink, chief investment strategist of Options for Income, has devised a trading system that generates steady income, come what may.
Jim’s proprietary investment strategy cranks out a big gain every Thursday, like a paycheck that you can mark on your calendar. He made himself a millionaire with this trading system and now he wants to share it with you.
Think of these weekly gains as an extra paycheck that you can always count on. As Jim puts it:
“I schedule each trade ahead of time and the exact amount I make will be determined by each trading situation. I’m obviously always trying to make as much as I can, as long as it doesn’t compromise safety. I’ve produced winners 85% of the time, so this has been a very reliable strategy over the years.”
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