The Three Stages of Investment Booms

This post The Three Stages of Investment Booms appeared first on Daily Reckoning.

The boom in cryptocurrencies is following the same script that has played out over, over and over again.

You see, every boom follows a sequence of three stages. Every single boom throughout history has followed this script.

The stock market boom in the roaring ’20s… the tech boom in the 1990s… the housing boom in the 2000s.

And now the booming cryptocurrency market is following this exact same 3-step script.

First, only early enthusiasts are courageous enough to invest in the new trend. That’s stage 1.

Then, institutional investors (the so-called “smart money”) jump in. That’s stage 2.

Finally, the public joins the party, triggering a massive explosion in price. That’s stage 3.

If you know how to use this roadmap, you could make an absolute fortune. And to help you understand how this 1-2-3 sequence works, let me show you what happened during the 1990s boom in tech stocks.

In the mid-1990s, most people didn’t even know what the internet was. In 1994, the morning show NBC’s Today had a segment where one of the anchors asked, “What is the internet, anyway?”

While most people were dismissing the technology as a fad, early adopters like myself were heavily investing in it. In 1995, I correctly predicted every company would need a website. So I started my first internet company to help big corporations get online.

That’s how I ended up building the first websites for American Express, HBO, Sony and Disney, among others.

That was stage 1 of the boom.

Only when Netscape went public in late 1995 did people outside Silicon Valley start taking the internet seriously. That’s when institutional investors started joining the party, with pension funds and venture capitalists making a fortune when companies like Yahoo and Amazon went public.

The additional flow of money from the “smart money” helped pushed tech stocks even higher. That was stage 2 of the boom.

But the public was still not participating.

In June 1998, for example, mainstream economist Paul Krugman predicted the internet’s impact on the economy would be no greater than the fax machine. It wasn’t until 1999 that the masses finally started to invest heavily in tech stocks.

With more people jumping into the market, tech stocks jumped even higher, attracting more and more people wanting to get a piece of the action.

And that was the third and most explosive stage of the boom, with the Nasdaq soaring more than 85% in 1999 alone.

I’m telling you this because my research shows that cryptocurrencies are following this exact same script…

First, early enthusiasts, then, institutional investors, and finally the public. Where are cryptocurrencies right now?

In stage two of the boom.

The public is still not invested. That’s why right now is so special. If you get in before the masses, you could see astronomical gains.

And to help my readers take advantage of this generational opportunity, I’ve organized a very special team.

Using my network, I’ve located a small group of experts and hired them to also take a look inside …read more

Crypto Alert: Mastering the Volatility

Greg Guenthner

This post Crypto Alert: Mastering the Volatility appeared first on Daily Reckoning.

It was the most expensive pizza ever bought in the history of human existence…

In May 2010, an unknown programmer named Laszlo Hanyecz exchanged 10,000 bitcoins for two Papa John’s pizzas.

About $30 could have netted you the 10,000 bitcoins Laszlo needed to fork over for his two pies, according to Coinbase.

It was the first real-world bitcoin transaction.

But that’s not the only reason it made history.

Fast-forward to today and we find ourselves smack in the middle of a bitcoin buying frenzy.

Everyone will remember 2017 as bitcoin’s breakout year.

In January, bitcoin was trading near $1,000. It crossed above $3,000 in June. Then it hit $5,000 in September.

On Dec. 7, the great bitcoin rally screamed to a staggering $19,000 before falling back to $15,000 in a matter of hours.

Bitcoin has proven it can turn just a few bucks into a fortune. But the dips and rips are more volatile than in any other market in history.

But with my Seven-Figure Formula, you could master it.

Time to seize the day!

The Simplest Way to Profit From the Bitcoin Boom

So what’s the best way to play the bitcoin boom?

The best way is simply to buy bitcoin itself.

Thanks to recent developments, that’s actually a lot easier than it used to be.

It also requires a whole lot less capital than you may think. You don’t need to invest tens of thousands of dollars to get exposure to bitcoin. A couple hundred dollars is enough to get you started.

The advantages of buying bitcoin come from the fact that it’s the only cryptocurrency that you can buy and forget about right now. When the day of reckoning comes for the crypto bubble, bitcoin is likely to be the only coin left standing.

Another benefit to bitcoin is that you can buy as little as 0.00000001 bitcoins — making the tiniest unit of bitcoin tradable today worth less than a penny.

You can get exposure without sinking a massive chunk of cash into it.

Just remember, the major upside doesn’t come without some risks.

The smartest way to play this crypto king is by making a modest bet and then not fixating on the roller coaster ride to follow.

Will “Crypto Boom” Stocks Quickly Go Bust?

Bitcoin and other digital currencies aren’t the only assets benefiting from crypto mania.

There are many ways investors can speculate on cryptocurrencies without buying a single coin.

With bitcoin mania ramping up to all-time highs, some of the smallest stocks operating in various spaces related to cryptocurrencies are starting to go wild too.

These plays are taking Wall Street by storm. Three of the four most actively traded stocks in the country the Monday after Thanksgiving were crypto plays, Reuters reports.

However, not all of them were rocketing higher. Many of these stocks have endured incredible intraday price swings of triple digits in a matter of days.

That’s enough to give even the most adventurous investor heartburn.

Moves like the ones we’re witnessing in these emerging crypto plays are rare …read more

How to Buy the Next Great Tech IPO for Pennies on the Dollar

This post How to Buy the Next Great Tech IPO for Pennies on the Dollar appeared first on Daily Reckoning.

One share of Facebook stock will cost you almost $180.

A single share of Netflix is worth almost $200.

Apple stock will run you more than $165 per share.

But these popular tech stocks look downright cheap compared with Amazon and Google. You would have to fork over more than $1,000 for just one share of either of these household-name tech giants.

If you’re looking to get in on the ground floor of Wall Street’s next tech all-stars on the cheap, you’re better off going after hot names right when they debut on the public markets, right?

Wrong.

The most anticipated initial public offering of 2017 was Snap Inc. (NYSE:SNAP). The company is the creator of the Snapchat app that’s constantly distracting your kids. As you would probably expect, it debuted on the market eight months ago to a hoard of hungry buyers.

Unfortunately, investors grabbing shares of SNAP weren’t exactly getting in on the ground floor. The hot social media stock was valued at around $30 billion the first day it hit the New York Stock Exchange.

Like most initial public offerings, Snapchat’s rally fizzled just a few days after the stock hit the market. By the end of the summer, SNAP had dropped more than 50%. The excited throng of millennials who jumped at the chance to purchase shares of their favorite social media platform didn’t make a single dime.

But what if you invest in the company before it hits the market?

The day Facebook went public back in 2012, venture capital firm Accel Partners had already turned its $12.7 million investment into $12.48 billion. That’s nearly a 1,000-fold increase!

If you had invested $2,500 in the deal, you’d have walked away with $2.5 million before regular folks even had the chance to buy a single share.

But obviously, that’s easier said than done. There are countless privately held companies out there trying to raise cash, so it’s very difficult to figure out which one is the next Facebook and which is trash.

Worst of all, to even think about investing in a private company, you typically have to be an accredited investor. That means you must have $1 million sitting in the bank or make more than $200,000 each year.

The bar is set impossibly high.

That brings us to one of Wall Street’s dirty little secrets: You won’t get rich betting on a hot new IPO.

Contrary to popular belief, IPO day isn’t the best time to get in on the ground floor of an exciting company. In fact, the ground floor was built long before the company’s board is trotted out to ring the opening bell on the stock’s first trading day.

By the time a company is big and successful enough to issue a public offering, the early investors have already made their money.

It’s sad. The Wall Street crowd gets the chance to sell their shares as soon as unsuspecting mom and pop investors swoop in to …read more

The True Rate of Inflation

Omen of Recession

This post The True Rate of Inflation appeared first on Daily Reckoning.

Dear Reader,

The Federal Reserve pursues its 2% inflation target with a zeal verging on derangement.

Yet it progresses toward its target as poor Sisyphus of Greek mythology progressed uphill with his rock — in vain.

Core inflation registered 1.9% in January… and 1.5% in June.

The most recent core inflation number?

A Sisyphean 1.4%.

The rock rolls downhill.

Here we speak of official inflation.

But is actual inflation dramatically higher?

Today we pierce the mask of statistics… expose the myth within… and hazard a true inflation reading…

The Fed’s 2% inflation appears as distant as the summit of Sisyphus’ hill.

Experts dispute the causes — depressed worker wages resulting from globalization, “secular stagnation,” the astrological misalignment of stars and planets, etc.

But assets such as stocks, bonds and real estate have been the scenes of dramatic inflation over the past several years.

And therein hangs an epic tale…

Joseph G. Carson, former global director of economic research at AllianceBernstein:

U.S. financial markets have in the last 20 years experienced three unprecedented booms in asset prices and two busts. During this span, the market value of real and financial assets held by households has increased more than $70 trillion…

$70 trillion!

Traditional inflation models exclude these asset prices.

But what if they were included?

The New York wing of the Federal Reserve has hatched a model for that expressed purpose…

The “underlying inflation gauge (UIG).”

This UIG incorporates not only consumer prices… but producer prices, commodity prices and financial asset prices.

It thus promises a true inflation reading.

The New York Fed:

The UIG proved especially useful in detecting turning points in trend inflation and has shown higher forecast accuracy compared with core inflation measures.

If we gauge inflation by this comprehensive model… the true rate of inflation is above the Fed’s 2% target… and roughly double the core rate.

But what?

Roughly 3%.

Carson:

The latest reading shows inflation of almost 3% for the past 12 months, compared with [core inflation, which excludes food and energy]…

Since the broad-based UIG is advancing 100 basis points above [core inflation], it indicates that asset prices are large, persistent and reflect too easy monetary policy.

The lesson, clear as gin:

Inflation lives and thrives. But largely in assets.

And the kernel in the nut:

The UIG carries [an important message] to policymakers: The obsessive fears of economy-wide inflation being too low is misguided; monetary stimulus in recent years was not needed.

Obsessive fears of low inflation are misguided? Monetary stimulus in recent years was not needed?

This Carson heaves up strange and dangerous heresies.

The Paul Krugmans and Ben Bernankes and Larry Summers of the world will set him down as an agent of the Old Boy himself, an enemy of civilization.

As well claim that George Washington didn’t fell the cherry tree…. that the moon is 99.9% blue cheese… worse, that gold is money.

But what if the UGI is right?

Were decades of loose monetary policy an epic blunder?

Analyst John Rubino of DollarCollaps.com:

The really frustrating part of this story is that had central banks viewed stocks, bonds …read more

Inflation Can Return Much Faster Than You Think

This post Inflation Can Return Much Faster Than You Think appeared first on Daily Reckoning.

Consumer price inflation has remained persistently low, despite the Fed’s best efforts. This has led many people to ask where the inflation is, because the Fed has created trillions of dollars since the financial crisis.

But there has been inflation. It’s just been in assets like stocks, bonds, real estate, etc. How about bitcoin? Bitcoin increased about $2,000 yesterday alone! It’s trading at about $16,000 as I write. We’ve never seen anything like it.

The bottom line is, we’ve seen asset price inflation, and lots of it, too.

But the question everyone wants to know is when will we finally see consumer price inflation; when will all that money creation catch up at the grocery store and the gas pump?

It’s difficult to say exactly. But once it does happen, it will likely strike with a vengeance. Double-digit inflation could quickly follow.

Double-digit inflation is a non-linear development. What I mean by that is, inflation doesn’t go simply from two percent, three percent, four, five, six. What happens is it’s really hard to get it from two to three, which is ultimately what the Fed wants.

It’s proving extremely difficult just to get up to two. Personal consumption expenditures (PCE) is the core price deflator, which is what the fed looks at. Currently, it is at about 1.4%, but it’s stuck there. It’s not going anywhere. The Fed continues to try everything possible to get it to two with hopes to hit three.

The reason is that it’s not purely a function of monetary policy, it’s a partial function of monetary policy.

It’s also a partial function of behavioral psychology. It’s very difficult to get people to change their expectations, but if you do, it’s hard to get them to change back again.

Inflation can really spin out of control very quickly. So is double-digit inflation rate within the next five years in the future? It’s possible. Though I am not forecasting it. If it happens, it would happen very quickly. We would see a struggle from two to three, and then jump to six, and then jump to nine or ten.

This is another reason why having a gold allocation now is of value. Because if and when these types of development begin happening, gold will be inaccessible.

To this point, I am often approached on, “How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the federal reserve?”

It’s not made up. I don’t throw it out there to get headlines, et cetera. It’s the implied non-deflationary price of gold. Everyone says you can’t have a gold standard, because there’s not enough gold. There’s always enough gold, you just have to get the price right.

That was the mistake made by Churchill in 1925. The world is not going to repeat that mistake. I’m not saying that we will have a gold standard. I’m saying if you have …read more

Elon Musk’s Biggest Fear, Realized

Elon Musk Tweet

This post Elon Musk’s Biggest Fear, Realized appeared first on Daily Reckoning.

Have you heard about Atlas, the most advanced humanoid robot on the planet?

I’ll bet the farm you’ve never seen anything like it before.

Last week, former Alphabet subsidiary Boston Dynamics released new video demonstrating their Atlas robot’s new capabilities.

It could revolutionize what we think the “factory robot” can do. Atlas can be knocked off its path and then correct itself. It can do backflips, too.

It has dexterity no robot has ever had. What does that mean for you and me?

How You Get a Robot to Do Backflips

The trend to “humanize” robotics has captured the minds of scientists for decades.

But until now the technology has failed to give these robots the ability to move and react quickly to changing conditions around them.

How does a robot know to circumvent spills or other factory hazards?

What happens when it gets bumped into while running supplies from one side of a warehouse to the other?

How does it avoid getting bumped in the first place?

To be able to “think on one’s feet” has traditionally been the edge every human worker has held over its robot counterpart.

But the gap is closing quickly.

The dexterity Atlas shows as it navigates hazards and performs tasks completely reinvents how we need to consider automated workforces.

But the video has also raised the ire of some. Even Elon Musk, who recently tweeted:

It’s important to take Musk’s tweet with a grain of salt. For one, Musk’s Space X and Tesla companies are leaders in AI and robotics.

But Musk willingly plays devil’s advocate. It must be acknowledged that even the best innovations and advances are not without their issues or unintended consequences.

But technology, even as advanced as Atlas, is not something we should fear. We should embrace the change. Or at the very least get used to it.

Because like it or not, the robotics trend will continue to imprint itself across major industries more and more in the coming years.

Which leads me to six important “laws” of technology that help explain what’s happening in robotics today.

In 1986, technology historian Melvin Kranzberg established six crucial rules to follow when evaluating technology’s impact on our world.

Today, I’d like to share these rules with you and quell some of the alarmism.

The Six Laws of Tech You Need to Know
1. “Technology is neither good nor bad; nor is it neutral.”

Kranzberg’s first law is perhaps the most important one to remember. There is no inherent good or evil to any technology. The historical, political and economic context weighs far more heavily on whether a technology is good or bad.

This includes robots like Atlas.

2. “Invention is the mother of necessity.”

Tech innovations almost always require new advances before becoming truly useful. This powers the development of new ideas and eventually leads to new industry growth.

Take electric cars, for example. This trend included the development of new batteries, new lightweight materials, new infrastructure and so on.

3. “Technology comes in packages, big and small.”

Take your smartphone. Manufacturers created the …read more

This “Anti-Amazon” Play is Heating Up…

This post This “Anti-Amazon” Play is Heating Up… appeared first on Daily Reckoning.

Amazon is stretching its tentacles across the globe during the busy holiday shopping season.

The undisputed king of online retail in the U.S. is now making a push to win over Asian markets. Just yesterday, Amazon launched its Prime subscription service in Singapore, rolling out the full offerings we enjoy here in the Western Hemisphere.

The move into Southeast Asia is a calculated attempt to ramp up competition with Alibaba. Reuters notes that Amazon was already testing the waters back in the summer when it launched a free two-hour delivery service in Singapore in its first “head-on battle” with its Chinese rival.

With world domination in Amazon’s sights, there isn’t anywhere left for brick and mortar retail to hide. At least that’s what we’re told…

In reality, we can think of several niches that have managed to stay out of Amazon’s grasp. There’s more to the “death of retail” story than struggling big-box retailers and dead malls.

Earlier this year, we pointed to some interesting statistics that completely contradict the “death of retail” market meme. For instance, brick and mortar retail is actually expanding this year. According to IHL Group, U.S. retailers will open 1,326 more locations than they will close in 2017. So much for a shrinking sector.

As we’ve said from the start, the best businesses will adapt and survive, whether we’re talking online start-ups or brick and mortar retailers. Despite the endless talk of store closings paraded on our television sets this year, some traditional retailers are booming because they’re offering goods and services that are out of Amazon’s reach.

In fact, the Wall Street Journal just blew the lid off a story we’ve been quietly covering all year…

While many major retailers are struggling, extreme discounters and dollar stores are finding a key foothold in low-income rural America. Dollar General Corp. (NYSE:DG) is a top contender, making a push to open 1,000 new stores this year.

“Dollar General is expanding because rural America is struggling,” The Wall Street Journal concludes. “With its convenient locations for frugal shoppers, it has become one of the most profitable retailers in the U.S. and a lifeline for lower-income customers bypassed by other major chains.”

Investors are finally starting to catch onto this trend. Dollar General stock has even managed to outperform Amazon over the past six months…

How is this possible?

For starters, the dollar stores have tapped into the market of America’s forgotten low-income families. That’s how Dollar General has managed to book more than double the profit of struggling retailer Macy’s over the past year, the WSJ notes.

We’ve been bulled up on the “cheap junk” sector for a while now. Our theory is that these lean dollar store operations have what it takes to survive alongside Amazon. They fill an important retail niche and don’t have to worry about price-matching gimmicks the big box retailers use to compete. While other retailers are focused on higher income consumers, the dollar stores are getting a …read more

New Buy Alert: Better Than Visa

Stock Bubbles Happen Around These Valuations

This post New Buy Alert: Better Than Visa appeared first on Daily Reckoning.

The stock market is unquestionably expensive right now.

Just look at the chart I found in a recent investor letter from the Centaur Value Fund. The chart may look a little busy, but it’s actually very simple.

The chart shows us what happens to the U.S stock market every time it reaches the 90th percentile in terms of trailing ten year median price to earnings. Reaching that 90th percentile isn’t something that happens very often. The red dotted line in the chart shows you the five prior instances (1902, 1929, 1970, 1999, and 2008).

If you are familiar with the history of the stock market, those dates will mean something to you.

And the sixth instance is today…

The only other five times we hit this kind of valuation it was followed by a pretty brutal stock market collapse. (My portfolio has been through two of them — and they aren’t fun.)

But while the market as a whole is unquestionably expensive, specific areas of the market are not.

The World of Spinoffs

Spinoffs are one area of the market that doesn’t have overinflated prices.

A spinoff takes place when a parent company “spins off” one distinct subsidiary or business unit into a stand-alone public company. When the spinoff occurs, the shareholders of the parent company receive shares of this newly spun-off entity.

The underlying business reason for doing the spin-off is usually to rid the parent of a non-core business so that it can focus on what it does best.

What often happens is that the investors who receive the shares of the spun-off business don’t want them. Remember, they invested in the parent company, not this smaller subsidiary. Institutional investors in particular aren’t interested in owning a much smaller company.

The result is that the shares of the spun-off company get sold-off aggressively. Not because of poor business performance, but just as a function of being a spinoff.

And any time widespread selling of shares of a company takes place due to something other than underlying business performance, there is potential for opportunity of the observant investor.

One fairly recent spin-off that presents opportunity is Synchrony Financial (NYSE:SYF).  I found Synchrony in the portfolio of Seth Klarman, perhaps the most respected hedge fund manager of the past thirty years.

Source: Business Insider

What made an impression on me with respect to his Synchrony position is that like me, Klarman is extremely bearish on the overall stock market today.

In fact, he is so bearish that he currently has 40% of his fund conservatively positioned in cash and recently gave $2 billion back to his investors due to the lack of value plays available.1

Despite his bearish positioning, Klarman has 11% of his invested capital allocated to shares of Synchrony. That is serious conviction.

Synchrony was spun out of General Electric two years ago. It is the largest private label credit card provider in the United States — controlling almost half the market. Long story short, it’s a dominant, fast …read more

Smoking-Hot Profits for Your New Year

This post Smoking-Hot Profits for Your New Year appeared first on Daily Reckoning.

The year ahead could bring a whole new meaning to “Garden State.”

That’s because the next state to legalize recreational marijuana could be New Jersey.

Not long ago, that would have been unthinkable.

Gov. Chris Christie has been a staunch opponent of legal pot for the last seven years. Pot wasn’t going to pass with Christie in the governor’s mansion — no way, no how.

But last week’s election changed all that.

The Polls Don’t Lie — People Want Weed

Democrat Phil Murphy will be sworn in as New Jersey’s governor in January, bringing with him an overwhelmingly pro-pot stance.

Murphy believes that marijuana should be legal for adults 21 years old or older. He’s promised to sign a legalization bill into law within the first 100 days of his term.

That means by April, recreational pot could be legal in New Jersey.

At the end of the day, what we’re really seeing from Murphy here is a play for tax revenue. A recent study showed that legal recreational marijuana could generate $300 million a year for the state’s coffers.

More importantly, New Jersey could be the prototype for other neighboring states mulling over the possibility of legalizing weed.

If states like New York and Pennsylvania see piles of money rolling in without measurable negative side effects, it’ll only be a matter of time before they follow suit.

But New Jersey wasn’t the only place that saw pot victories at the polls recently

Canada also took another major step closer to full legalization.

Another Leap Forward Towards Full Legalization

Last Monday, Canada’s House of Commons passed Bill C-45 by a vote of 200-82.

The bill would legalize marijuana for recreational purposes, keeping Canada on track for the federal government’s plan to legalize cannabis use by next summer. Now the bill moves to the Senate.

At present, only medical uses of marijuana are legal in Canada. But the key is that cannabis is legal at a federal level as a substance — something that’s not the case here in the U.S.

In the U.S., weed maintains a Schedule I drug status, meaning there’s “no currently accepted medical use and a high potential for abuse.”

In other words, the feds in the U.S. still classify marijuana as worse than crack cocaine, meth and PCP.

If that weren’t stupid enough, that federal drug classification has a major negative impact on American businesses trying to compete in the pot markets.

That key difference in legal status gives Canada a major edge.

But still there’s a lot of low-hanging fruit in the legal pot arena right now in both the U.S. and Canada.

With new states coming online with legal weed in the months ahead and a major longer-term uptrend in pot stock prices, you have a very exciting situation shaping up for 2018.

Ray Blanco
for The Daily Reckoning

Editor’s note: The booming pot industry could be your best chance at life-changing wealth in 2018.

Click here now to see this urgent message from my colleague Ray.

The post Smoking-Hot …read more

Serious Investors Hate This Simple Trading Strategy

This post Serious Investors Hate This Simple Trading Strategy appeared first on Daily Reckoning.

Tech stocks made a feeble attempt at a bounce yesterday.

The Nasdaq Composite shot higher at the opening bell, only to lose its footing in the early afternoon. The tech-heavy index closed in the red for the third straight trading day.

Even a casual market watcher knows the high-flying tech leaders are overdue for a significant pullback. But now that we’re seeing some profit-taking, I have a feeling everyone’s going to start trashing momentum traders once again.

“Momentum works both ways,” they’ll say. “That’s what you get for chasing winners.”

Chasing winners. 

I hate that.

Likening momentum to chasing winning stocks makes the strategy sound so foolish. Only losers and simpletons chase stocks.

You hear this kind of talk all the time from all sorts of Very Serious Investors.

They’ll peer over their glasses and tell you that you can’t beat the market by chasing momentum.

The problem is most investors agree with this statement. After all, some guy in a suit and tie said it on TV. It must be true.

It’s not.

Momentum is the best performing strategy you can employ—yet barely anyone does it.

Most investors are too wrapped up in debating growth vs. value. Yet when it comes to performance, both growth and value trail momentum.

There’s data to back up that statement, too.

“Empirical data shows that momentum has indeed been a consistent long-term investment strategy,” John Hancock’s Frank Teixeira writes. “In fact, momentum factor returns have been stronger than those of either growth or value over the very long term, resulting in significant excess relative performance. Momentum averaged more than 3% in annual outperformance relative to the market from 1927 to 2014.”

Just look at all those growth and value funds.

Why is everyone pouring their hard-earned investing dollars into inferior strategies?

It’s because of their narrative filter.

It’s shockingly simple to force a growth or value strategy into your personal narrative.

Growth is the easiest sell. It’s all about stories. The next Facebook. The next Apple. Who doesn’t want to own these ideas? And value appeals to our more rational emotions. I want to make money safely using a rigorous, academic approach. Again, how could you say no to that? The stocks that eventually outperform are the hidden, undervalued, unloved gems. It makes perfect sense.

But momentum? Buying the strongest stocks on the market and then just repeating this process over and over? C’mon. That sounds ridiculous. The whole idea of momentum investing is too simple. And nothing simple could possibly work in the cutthroat world of the stock market.

Yet while momentum sounds simple enough, it’s not an easy strategy for most investors to use consistently. If you’re running any type of momentum strategy and rotating into the strongest stocks on the market at any given time, you’re buying a bunch of stocks most investors wouldn’t touch because at a glance, they look overextended.

Take a minute and think about the big momentum winners we’ve seen over the past 12 months. Facebook. Netflix. NVIDIA. Would …read more

My Bad Bitcoin Advice

Good Decisions Graph

This post My Bad Bitcoin Advice appeared first on Daily Reckoning.

“Thanks a lot for your advice on bitcoin. Have you invested anything in cryptocurrencies?”

The text was from an old friend Natalie. And she was ticked off.

Just a few weeks ago, Natalie reached out to me and asked for my thoughts on bitcoin. Without giving her any personalized financial advice, I simply explained how cryptocurrencies carried plenty of risk and were speculative investments at best.

Of course you already know what happened.

As bitcoin soared to a price of nearly $12,000, Natalie sat on the sidelines. And then blamed me for missing out on the profits she could have made from bitcoin.

My decision to warn her of the risks of bitcoin — and her decision to stay on the sidelines — ultimately cost her money. But does that necessarily mean they were bad decisions?

Today, I want to chat a bit about the difference between good and bad investment decisions, and how they relate to good and bad outcomes. Hopefully, the discussion will help you become a wiser and more profitable long-term investor.

The Difference Between Good Decisions and Good Outcomes

If you buy a car insurance policy and then never have a wreck, did you make a bad investment?

Of course not.

Life is full of decisions that we make based on incomplete information. We don’t know for sure whether we will get in an accident or not. So we make wise decisions to protect our interest by buying insurance policies.

Regardless of whether the policies pay us money (a financial win for the investment), or expire with no payment (a financial loss for the investment), the decision was still a good one.

That’s how I look at investment decisions too.

Whenever I choose to recommend a dividend stock or growth opportunity… or when I choose to warn you about particular risks… my goal is to help you make a wise decision with your investment money.

And because we’re dealing with a market full of uncertainty, the end result of those decisions will not always pan out the way we expected.

Take a look at the graph below:

In the table above, you can see four different ways that our investment opportunities can turn out.

These four categories are the intersections between the type of decisions we make, and the eventual outcomes for our investments.

Four Types of Investments

As an investor and your Daily Edge editor, I try to make the best decisions possible when it comes to the opportunities we’re tracking.

I have a system for screening through different stocks and other investment securities. I have a research process I go through each day. I have credible sources that I follow, and I’ve developed a network of experts — all with one thing in mind:

Making the best investment decisions I possibly can.

But with that said, even the best decisions don’t always work out. No matter how much research I do, sometimes our investments won’t work out as well as we expect. Sometimes they’ll even trade lower and cause us to lose …read more

Markets Are Unprepared for a Government Shutdown

This post Markets Are Unprepared for a Government Shutdown appeared first on Daily Reckoning.

Will Republicans and Democrats agree on a budget, and avoid a government shutdown after midnight Friday?

I’d say the odds are 50/50. Actually, I put the odds of a shutdown at about 55%. There’s certainly enough substance here to be wary.

The government could shut down because of disagreements over defense spending, funding for Trump’s wall with Mexico, deportation of illegal immigrants brought to the U.S. as children (the “Dreamer Act” also referred to as “DACA”), funding for Planned Parenthood, funding for Obamacare (called “SCHIP”), disaster relief and more.

There’s not much middle ground between Democrats and Republicans on many of these hot button issues.

How would a shutdown affect the Fed’s plans to raise rates on the 13th?

If an agreement can’t be reached and the government does shut down, it’s very difficult to imagine that the Fed would go forward with its planned interest rate hike on Dec 13.

Meanwhile, markets are almost certain the Fed will raise rates. It’s already “baked into the cake.”

The euro, yen, gold and Treasury notes are all fully priced for rate hike. If it happens, those instruments won’t change much because the event is priced.

But we could see a violent market reaction if Janet Yellen stays put and doesn’t raise rates.

If the Fed doesn’t raise rates, gold could soar as the Fed passes on its best chance to raise rates and markets perceive that easy money is here to stay. Euros, yen and Treasury notes will also soar.

Of course, saying the government could shut down is different than saying the government will shut down. Again, I give it about a 55% chance at this point.

And there are lots of ways for things to go wrong.

Late last week the Commerce Department released the October PCE core inflation data. This is important because that’s the number the Fed watches. There are plenty of other inflation readings out there (CPI, PPI, core, non-core, trimmed mean, etc), but PCE Core year-over-year is the one the Fed uses to benchmark their performance in terms of their inflation goal.

The Fed’s target for PCE Core is 2%. The October reading was 1.4%. For weeks I’d been saying that a 1.3% reading would put the rate hike on hold, and a 1.6% reading would make the rate hike a done deal. So, the actual reading of 1.4% was in the mushy middle of that easy-to-forecast range.

What’s interesting is that the prior month was also 1.4%, so the new number is unchanged from September. That’s not what the Fed wants to see. They want to see progress toward their 2% goal.

On the other hand, the 1.4% from September was a revised number. It was earlier reported at 1.3% (the same number as August).

You can read this two ways. If you see the August 1.3% as a low, then you can say the 1.4% readings for September and October were progress toward the Fed’s 2% target. It’s a thin reed, but …read more