What stock market triggers might emerge to kick off a negative spiral. Stock markets ultimately rise and fall based on economic fundamentals. Share prices and value fluctuate short term based on emotions. When markets are over bought or over sold any trigger can cause a massive positive or negative shift. A trifecta of events in the mideast could be such a trigger.
Two ancient choke points for the global economies of times past.
These choke points remain in the modern global economy.
The US stock market is very high. History suggests that its time for a serious pull back before the next 17 year bull market begins. How do we survive the correction so our savings are intact and can really grow in the next bull?
We’ll look at why the value in emerging stock markets offers extra opportunity in a moment. First, let’s look at a trifecta of oil related concerns that could cause a stock sell off. The first concern is lower oil prices. The drop in oil and gas triggered further strength in the Western economy and a rise in the US equity market, but this drop adds unrest in the Middle East where there are numerous triggers that could signal a downwards spiral of US share prices.
The second concern is the change of power in Saudi Arabia. King Salman bin Abdulaziz Al Saud, Saudi Arabia’s new ruler, has said he will keep Oil Minister Ali Al-Naimi and continue the policy of maintaining crude output. If this is so and the flow of oil remains unrestricted, this will help keep oil prices down. Saudi Arabia needs oil in the $90 range to balance its budget. Current prices below $50 per barrel range have been squeezing the Saudi budget and creating tension with some members of the royal family. King Salman is already 79 years old, and the next in line, Crown Prince Muqrin, is 69 and it’s very unclear how further succession might unfold. This transition could pressure the price of oil.
The third part of the trifecta concern the events in Yemen which could affect oil prices even more. Yemen is an oil producing country and its strategic position on the Bab al-Mandab strait are a cause of concern. “Bab al-Mandab” means “Gateway of Anguish”, or “Gateway of Tears”. These names come from ancient navigation dangers but could cause tears in the global economy now. The strait is a strategic link between the Indian Ocean and the Mediterranean Sea, via the Red Sea and the Suez Canal. Millions of gallons of crude oil pass through the strait every day.
An October 23, 2014 Financial Times article “Houthi expansion threatens Yemen’s strategic Bab-al-Mandab Strait” (1) by Peter Salisbury said: “Houthi militants are expanding their presence into western Yemen around a vital maritime corridor that controls access to the Red Sea, a potential threat for some of the 8 per cent of global trade that runs through the Suez Canal.
The Bab al-Mandab strait separates the Arabian Peninsula from east Africa and links the Red Sea with the Gulf of Aden and the Indian Ocean. Most ships using the waterway have come from, or are going to, Egypt’s Suez Canal, which connects the Red Sea with the Mediterranean and which contributes about $5bn a year to the Egyptian economy.
About 4 per cent of the global oil supply, much of it from Saudi Arabia and the other Gulf states, passes through the strait, which is 29km wide at its narrowest point.
Developments on the strait are also unnerving Saudi Arabia. Riyadh believes the Houthis are backed by Iran, and worries that its regional rival could be using its influence to disrupt Red Sea trade. Tehran has threatened in the past to block the Straits of Hormuz, the region’s other chokepoint, through which a fifth of global oil supply passes on a daily basis.”
Yemen’s unity, law and order have been enormously stressed. Four percent of global oil passes through the Mandab Strait. 20 percent through the Straits of Hormuz. Iran has a growing influence over both of these choke points. If these reports are correct, then we should watch events as they unfold in this area closely.
Should the unrest in this area restrict this amount of oil, the price of oil could skyrocket enough for investors may panic to trigger a wave of of pre-programmed algorithmic trading instructions in automated computer programs. This could cause a sharp, sudden correction and a strong downward spiral of stock prices.
Will these triggers be pulled? Your guess is as good as mine or anyone’s. There is always something that we do not know, especially in Yemen now. Ali Soufan, president of the Soufan Group, an international security firm was for years one of the FBI’s chief experts on al-Qaeda and two of its traditional power bases, Yemen and Saudi Arabia. He was interviewed about the Yemen situation in a news.yahoo.com news article (2) and said: “It is a total mess. Anybody who can tell you they know what’s happening in Yemen and what’s going to happen in Yemen, I know one thing: They don’t know Yemen.”
Investing in situations like this calls for special attention to value. This is why we carefully follow the value analysis of Keppler Asset Management. Here are excerpts from Michael Keppler’s quarterly good value update of global emerging equity markets. Borrow Low-Deposit High subscribers, you can read the entire 50 page January 2105 Keppler Asset Management Emerging Market Good Value Analysis click here.
Recent Developments & Outlook
Emerging Markets closed out the year 2014 on a weak note. Last quarter, the MSCI Emerging Markets Total Return (TR) Index (December 1988 = 100) was flat in local currencies, but due to weak local currencies it declined 4.5 % in US dollars and 0.3 % in Euros.
In 2014, the MSCI Emerging Markets TR Index was up 5.2 % and 11.4 % in Euros. However, again due to weak local currencies and a strong US dollar, it declined 2.2 % in US dollars.
The Euro continued its recent downtrend, giving up 4.2 % versus the US dollar last quarter and now stands at 1.2101 USD/EUR, down 12.2 % in 2014. This trend of a higher US dollar and lower local currencies has continued into January 2015.
Among the three regional indices, Asia gained 2.1 % in the last quarter, Europe, Middle East and Africa (EMEA) declined 0.9 %, and Latin America lost 6.1 %. In 2014, Asia (+7.7 %) and EMEA (+2.8 %) were up, while Latin America declined 0.9 %. Performance is in local currencies unless mentioned otherwise.
Seven markets advanced in the fourth quarter and sixteen markets declined. The best performing markets were Turkey (+14.4 %), China (+7.0 %) and Taiwan (+5.6 %). Greece (-25.6 %), the United Arab Emirates (-21.6 %) and the Czech Republic (-11.2 %) performed worst last quarter.
In 2014, sixteen markets advanced and seven markets declined. Egypt (+33.1 %), Turkey (+29.2 %) and Indonesia (+28.8 %) performed best, while Greece (-31.6 %), Russia (-12.8 %) and Hungary (-12.2 %) came in last.
There were no changes in our country ratings last quarter. The Top Value Model Portfolio contains twelve markets — Brazil, Chile, China, Colombia, the Czech Republic, Hungary, Korea, Malaysia, Poland, Russia, Taiwan and Thailand — at equal weights. According to our analyses, an equally-weighted combination of these markets offers the highest expectation of long-term risk-adjusted performance.
The table below shows how the Emerging Markets Top Value Model Portfolio compares to the MSCI Emerging Markets Index and to the MSCI Developed Markets Index at the end of 2014, based on selected assets and earnings valuation measures:
Click on image to enlarge.
Based on our valuation and return analyses, the asset class “Emerging Markets Equities” is now undervalued by 26 % versus the MSCI World Index. Furthermore, our Emerging Markets Top Value Model Portfolio is now undervalued by 14 % versus the MSCI Emerging Markets Index and by 37 % compared to the MSCI World Index of the developed markets. This bodes well with regard to potential out performance over the next three to five years for the emerging markets in general and for the Emerging Markets Top Value Model Portfolio in particular.
Michael Keppler New York, January 16, 2015
Emerging markets have an extra layer of safety due the undervaluation versus world markets. Click on the chart below to see an even greater undervaluation (over 40%) of the MSCI Emerging Markets Index versus the MSCI US Index.
The Good Value Emerging Markets have an undervaluation in the 50% range. An easy way to diversify into good value emerging markets is with the iShares ETFs shown below.
Gain From the Volatility of the Next Four YearsHowever America’s politics turn out, one thing is sure. There will be volatility in stock markets during the next four years.
The first reason markets will bounce has nothing to do with politics or policies. The market’s downward shift is simply due regardless of the party or the person in office.
Second the new politics will create an uncertain era. Everyone is shaken whether they are pleased with the election or not and nothing frightens markets like uncertainty.
Third we’ll see rising interest rates over the next 48 months. This will push markets down.
Despite these pitfalls, there is a way to profit using the downtrends to pick up good value shares.
During nearly five decades of global investing I have noticed found that good value strategies increase through bull markets and bear, through good presidents and bad. The steps to take are simple.
The first tactic is to seek safety before profit.
We can look at Warren Buffett’s investing strategy as an example. Buffett success is talked about a lot, but rarely does anyone explain how he make so much money. That was the fact until some researchers really stripped his operation bare. They looked at everything and learned the deepest of Buffett’s wealth management secrets. Fortunately they published all in a research paper at Yale University’s website. that reveals important truths about extending wealth.
This research shows that the stocks Buffett chooses are safe (with low beta and low volatility), cheap (value stocks with low price – to – book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios).
The second tactic is to maintain staying power. At times Buffet’s portfolio has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.
This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a good value strategy) for 13 month’s time, increases the probability of outperformance to 70%. However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%. Time is your friend when you use a good value strategy. The longer you can hold onto a well balanced good value portfolio the better the odds of outstanding success.
The Buffett strategy integrates time and value for safety and profit.
A third tactic is using limited leveraging, tactic in the strategy boosts profit. Buffett leverages his portfolio at a ratio of approximately 1.6 to 1. The Yale published research paper shows the leveraging methods used by Warren Buffett to amass his $50 billion fortune. The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more. The research shows that neither luck nor magic are involved. Instead, the paper shows that Buffet’s success hinges on using leverage at the rate of 1.6.
To sum up the strategy, Buffet uses limited leverage to invest in large purchases of “cheap, safe, quality stocks”. He limits leverage so he can hold on for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.
Stated in another way buffet uses logic (buy good value) to have the conviction, wherewithal, and skill to invest with leverage over many decades.
What do we do when we are not Warren Buffett?
May I introduce the Purposeful Investing Course (Pi) for those who want to invest like Warren Buffet, but know they are not. This course is based on my 50 (almost) years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.
Enjoy Extending Wealth
Pi’s mission is to make it easy for anyone to create a three point strategy, like Buffett’s even though they do not have a lot of time for or knowledge about investing.
Pi reveals investing secrets and the sciences that make investing easy, safer, less time consuming and increases the chances of profit.
One secret is to invest with a purpose beyond the cash. One tactic as mentioned is staying power. This means not being caught short and having to sell during a period of loss. This also means having enough faith in a strategy that we stick to the plan. When we invest with purpose, doing what we love, we enjoy the process more and are more likely to hold on during down times, when most poor investors panic and sell.
Slow, Worry Free, Good Value Investing
Stress, worry and fear are three of an investor’s worst enemies. They create the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market sector they choose. The behavior gap is created by natural human responses to fear. Pi helps create profitable strategies that avoid losses from this gap.
Spanning the Behavior Gap
Behavior gaps are among the biggest reasons why so many investors fail. Human evolution makes fear the second most powerful motivator. (Greed is the third.) Fear creates investment losses due to behavior gaps. Fear motivates us more strongly than desire. By nature investors are risk adverse.
Winning investors though embrace risk because they have a plan based on good value.
Purpose is the most powerful motivator, stronger than fear and greed, so a strategy with purpose is the most powerful of all.
Combine your needs and capabilities with good value secrets and the math to back up your value selections through the Pifolio – The Pi Model Portfolio
Lessons from Pi are based on the creation and management of a Primary Pi Model Portfolio, called the Pifolio. There are no secrets about this portfolio except that it ignores the stories (often created by someone with vested interests) and is based entirely on good math.
The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets using my (almost) 50 years of global experience and my study of the analysis of four mathematical investing geniuses (and friends).
The Pifolio analysis begins with a continual research of international major stock markets that compares their value based on:
#1: Current book to price
#2: Cash flow to price
#3: Earnings to price
#4: Average dividend yield
#5: Return on equity
#6: Cash flow return.
#7: Market history
We follow this research of a brilliant mathematician and have tracked this analysis for over 20 years. This is a complete and continual study of international major and emerging stock markets.
This analysis forms the basis of a Good Value Stock Market Strategy. The analysis is rational, mathematical and does not worry about short term ups and downs. This strategy is easy for anyone to follow and use. Pi reveals the best value markets and provides contacts to managers and analysts and Country Index ETFs so almost anyone can create and follow their own strategy.
A country ETF provides diversification and cost efficiency by spreading one simple, even small investment into a basket of equities in a good value stock market. The costs are low and this type of ETF is one of the hardest for institutions to cheat. Expense ratios for most ETFs are lower than those of the average mutual fund.
Little knowledge, time, management or guesswork are required. The investment is simply a diversified portfolio of good value indices. Investments in an index are like investments in all the shares of a good value market.
Pi matches this mathematical certainty with my fifty years of experience. This opens insights to numerous long term cycles that most investors miss because they have not been investing long enough to see them.
For example in the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich. Some of my readers made enough to retire. Others picked up 50% currency gains. Then the cycle ended. Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview. He said: Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!
I did well then, but always thought, “I should have invested more!” Now those circumstances have come together and I am investing in them again.
The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.
The two conditions are in place again! There are currently ten good value (non US) developed markets, plus 10 good value emerging markets.
Pi shows how to easily create a diversified, worry free portfolio in some of these good value markets using Country Index ETFs.
The current strength of the US dollar is a second remarkable similarity to 30 years ago. The dollar rose along with Wall Street. Profits came quickly over three years. Then the dollar dropped like a stone, by 51% in just two years. A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.
This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago. There is so much more to write and the trends are so clear that I have created a short, but powerful report “Three Currency Patterns For 50% Profits or More.” This report shows how to earn an extra 50% from currency shifts with even small investments. I kept the report short and simple, but included links to 153 pages of Good Value Stock Market research and Asset Allocation Analysis.
The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000). There is extra profit potential of at least 50% so the report is worth a lot.
This report sells for $29.95 but you’ll receive the report “Three Currency Patterns For 50% Profits or More” FREE when you subscribe to Pi.
Pi also explains when leverage provides extra potential without undo risk. For example in 1986 I issued a report called “The Silver Dip” that showed how to borrow 12,000 British pounds (at almost 1.6 to 1 dollars per pound the loan created US$18,600) and use the loan to buy 3835 ounces of silver at around US$4.85 an ounce.
Silver had crashed, I mean really crashed from $48 per ounce. As prices decreased from early 1983 into 1986, total supply had fallen to 449.7 million ounces in 1986. Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986. Secondary recovery also was constricted by these low prices.
Then silver’s price skyrocketed to over $11 an ounce within a year. The $18,600 loan was now worth $42,185.
The loan was in pounds and in May 1986 the dollar pound rate was 1.55 dollars per pound. So the 12,000 pound loan purchased $18,600 of silver. The pound then crashed to 1.40 dollars per silver. The loan could be paid off for $13,285 immediately creating an extra $5,314 profit. The profit grew to $47,499 in just a year.
Conditions for the silver dip have returned. The availability of low cost loans and silver are at an all time low. The price of silver has crashed from nearly $50 an ounce to below $14 as did shares of the iShares Silver ETF (SLV).
(Click on chart from Google.com (1) to enlarge.) Imagine investing in a spike like this… with leverage!
At the same time the silver gold ratio hit 80, a strong sign to invest in precious metals.
I have updated a special report “Silver Dip 2016” about a leveraged silver speculation that can increase the returns in a safe portfolio by as much as eight times. The purpose of the report is to share long term lessons gained through 30 years of speculating and investing in precious metals. While working on the report, when the gold silver ratio slipped to 80 and the price of silver dropped below $14 an ounce, I knew I needed to share this immediately.
I released a new report “Silver Dip 2015” so readers were able to take advantage of these conditions and leverage 1.6 times as a speculation. That report generated profits as high as 212% and a revised 2017 issue has been produced.
“The Silver Dip 2106” sells for $39.95 but you receive “Silver Dip 2017” FREE when you subscribe to Pi.
Subscribe to the first year of The Personal investing Course (Pi). The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription. Plus you receive the $29.95 report “Three Currency Patterns For 50% Profits or More” and the $39.95 report “The Silver Dip 2017 free.
Enroll in Pi. Get the first monthly issue of Pi, and the report “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2016” right away.
#1: I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free purposeful investing.
If you are not totally happy, simply let me know.
#2: I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.
#3: I guarantee you can keep “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2106” report as my thanks for trying.
You have nothing to lose except the fear. You have the ultimate form of financial security to gain.
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(1) Financial Times Houthi expansion threatens Yemen’s strategic Bab al-Mandab Strait
(2) News.yahoo.com Yemen Chaos is a boon to al-qaeda expert and former FBI agent