Category: Prudent Investment

Yesterday I said I’d demonstrate how to ‘fuse’ two very different expense approaches to gain an trading advantage. I’ll get to which in a moment with an actual instance.

I’ve been using this new ‘fusion method’ since late last year. Despite the current correction, the results have been good and it’s outperforming the market comfortably.

I spoken with Kris Sayce about it today, as part of the number of Facebook chats we’ve been doing this week. You can check it out through clicking the screenshot below…and, of course, don’t forget to ‘like’ the page.

Before I show you how this fusion method functions, I want to touch on the topic de jour. That is, China’s currency devaluation.

Don’t you believe it’s funny how everyone is now an expert on it? The other day it was not even on the mainstream media’s horizon. Not that I saw anyway. But now it’s leaking off the business pages.

It wouldn’t have come as a surprise to you though, dear reader. In the 3 August edition associated with The Daily Reckoning I wrote the following:

‘The additional very big issue here is China’s currency peg to the dollar. As the All of us dollar strengthens and the US loses competitiveness, so does China. A break of the dollar-yuan peg is coming.

‘And that will send another deflationary impulse through the global economy.‘

Global miners BHP Billiton [ASX:BHP] and Rio Tinto [ASX:RIO] felt those chill deflationary winds the other day, dropping 4.3% and Five.4% respectively. And this morning, the actual Financial Review reports just how this deflationary behavioral instinct flows through the global economy:

‘Chinese steel producers have already cut export prices in response to a lower yuan, industry sources stated, providing some of the first proof of how Beijing’s devaluation can help companies in the world’s second-biggest economy boost sales.

‘China’s steel industry is the world’s biggest, but shrinking demand in your own home has forced many generators to ship record amounts abroad, with some said to be selling at a loss.

‘A weaker yuan will make Chinese steel products even less expensive overseas as Beijing’s surprise move to devalue its forex gives the country’s exporters leeway to chop prices.

‘Some small Chinese generators had already lowered export prices of steel products like rebar for construction use, through $US5-$US10 a tonne, sources familiar with the problem said.‘

But in all the pages discussed China’s ‘one-off’ currency devaluation (which to date stands at two adjustments totalling around 3.5%) no one has mentioned the architectural problems behind it.

I don’t know, maybe it’s implied in the entire currency war argument. Jim Rickards, editor of Strategic Intelligence, must be using a good old laugh at how the media are now flogging a term he or she reinvigorated and popularised years ago.

Yes, it is all about the ‘currency wars’. But what are the forex wars really about?

The way I view it, it’s a consequence of a horribly flawed global economic ‘structure’. I go on about ‘economic structure’ all the time. I think it’s a very important way to view the global economy.

In the context of China and the currency wars, here’s the problem. China has a huge trade surplus. It’s constructed its whole modern economic expansion around exports…which creates this trade surplus.

By all accounts, China remains really competitive on a global size. In July, it generated a trade surplus of US$43 billion. Yet it’s devaluing in order to retain export competitiveness?!

It’s doing so because it has an inflexible economy. It cannot handle change. The whole framework of its economy is geared towards satisfying the needs of western customers. Especially US consumers.

Even a little change in that dynamic periods trouble for China. Think about it. China wants to create a more balanced economy. One that sees it’s consumers driving growth.

Don’t you think a strong currency would make feeling in this case? It would make imports less expensive. It would increase the purchasing power of Chinese households. The problem is: the production structure of the global economy is not designed to provide for the Chinese consumer. It will take years of switch to get there.

But politicians are not thinking about structural change. They are only interested in maintaining the status quo…their own grip on power. Which is why the focus is always on monetary policy. Unfortunately, this only reinforces the structural impediments weighing the economy down.

We are truly stupid. The global economic climate is like the Titanic. It is headed for crisis, but everyone is blissfully unaware.

For me, the only question is how the coming crisis plays out. Do asset prices collapse as the buying power of cash increases? Or even does the opposite happen? Perform central banks double down on their historic post-2008 blunder?

I’m prepared for anything. It’s why I’ve embraced the ‘fusion method’ of investing. That is, focus on the company’s fundamentals and value, but also ‘listen’ to what the market informs about it. The market is far smarter than you. Ignore it at your peril.

Let me give you an example…

In February last year, JB Hi Fi’s share price fell sharply, putting the actual stock into a downtrend. (Remember earlier this week I said a downtrend occurred when the short term shifting average (yellow line) entered below the longer term MA (nowhere line.) You can see the cross over on the chart below.

The stock was good value, but ‘the market’ (reflected in the downtrend) told you to stay away.

Source: BigCharts

And the market was correct. In August 2014, JB’s stock price plunged on its results release. Though it was still good fundamental value, it was a bad buy at this time because it was in a downtrend.

Buying right into a downtrend is a higher risk strategy. It might work out, but you just have no idea how far the trend will take you. In addition, it’s higher stress.

For instance, you may have bought at around $17.Fifty after the initial decline. However it then fell some more, rebounded a little, and then plunged to $14.50. Perhaps you thought you got it wrong, and decided to get out…at exactly the wrong period.

The ‘fusion method’ of investing prevents you against getting into these situations. This tells you to wait for the downtrend to play out and for a new upward trend to emerge before buying.

That’s what we did here. As JB Hi Fi made a new multi-month high in February this year, and the shifting averages crossed over to confirm an emerging uptrend was going ahead, I sent out a buy recommendation to subscribers. All of us didn’t pick the bottom, but that’s ok. No one will ever get it done consistently so it’s no something should even try to perform.

The fusion method is a lower stress strategy. It’s about finding essentially mis-priced companies and waiting for a good uptrend to unfold before buying into them.

It’s simple and efficient. And built to withstand the actual uncertainties of the modern trading world. It’s working pretty much too. Recently I’ve been planning a video report to show you the best way to begin taking advantage of it. It’s almost ready for release. Stay tuned.

Regards,

Greg

Do stocks always seem to fall after you buy them?

Do you buy cheap stocks only to sit back and see them get much cheaper?

Or, following selling a stock because it is ‘expensive’, will it continue to rise in a seemingly deliberate attempt to spite and humiliate you?

Well, this is the topic of my Facebook chat with Kris Sayce today. Hit the screenshot beneath and have a listen. And remember in order to ‘like’ it:

In today’s Money Morning I’m going to provide you with a solution to these woes. I will explain why so many people seem to make these ‘mistakes’. Don’t worry, I’ve made them too. It’s what led me to this answer.

But first, a quick comment on the latest from China. Just what is happening in the Middle Kingdom? Are the Mandarins starting to lose it?

Yesterday wasn’t a high quality one for the central planners. Credit data for the month associated with July showed that nearly 900 billion yuan in new financial loans went to ‘non-bank financial institutions’. This is cash that effectively went to support the stock market.

The data from Reuters is actually even worse:

‘China has enlisted $800 million worth of public and private money in order to prop up its wobbly stock markets, a Reuters analysis exhibits, but the impact of the unprecedented government-orchestrated rescue has so far already been modest.

‘Public statements, media reports and market data demonstrate that Beijing unleashed 5 billion yuan (515 billion pounds) in funds – equivalent to nearly 10 percent of China’s GDP in 2014 as well as greater than the 4 trillion yuan it committed in response to the global financial trouble – to calm a savage share sell-off.’

Hang on…let’s get this directly. China just blew 10% of its GDP to prop up the stock market!? In the event that true, this is crazy. No surprise money is flying out of the country.

And after that at the same time, China devalued its forex, the yuan, against the US dollar. While the devaluation was ‘only’ 2%, that is large in currency terms and the biggest move in the actual yuan against the greenback since 94′.

I’ve warned about this happening. The US dollar is in a fluff market and it’s dragging the yuan along with it. That makes China’s exports much less competitive and with the economy struggling, it doesn’t need a strong currency.

The market reaction was negative. Aussie stocks started strong yesterday but then turned down because news of the devaluation hit. Asian markets fell as well and the selling continued in Europe and the US immediately. Clearly there is concern about the state of the Chinese economy and an official devaluation hints that China’s frontrunners might be worried too.

But as far as I can tell, this was bound to happen. China’s trying to manage a bust after going through a boom. It doesn’t seem sensible that its currency should rise. Its strength is purely a result of the peg to the dollar. So it makes sense to loosen that peg a little, no?

China said the adjustment was a ‘one-off’. Which means it probably is not. If it is a sign of things to arrive, it could accelerate capital moves from China and lead to a tightening of domestic financial policy. This in turn would sluggish the economy further. That isn’t a good sequence of occasions.

Is this the ‘treadmill to hell’ that Jim Chanos said China was on? Whatever it is, the risks are clearly increasing for The far east. Its managers really need to tweak their economic knobs carefully.

This is all part of the big picture unpredictability unfolding in the world due to a busted upward monetary system. It’s not going to alter folks. In fact, it’s only going to get worse.

Which brings me to the topic: how do you invest sensibly and prudently in such an atmosphere? I used to think that ‘value investing’ was the solution. I studied Warren Buffet as well as learned to focus on things like return on equity and guide values. His valuation strategy is different to what most people believe or understand, but it’s brilliant.

But I’m no Buffett. No one is. There’s no point trying to emulate a genius. You have to find your own way. I also worked out that Buffett’s achievement has much to do with random chance, a fact that he too has acknowledged in the past.

He started investing during America’s gold economic age. An already powerhouse economy gained the ‘exorbitant privilege’ of issuing the world’s reserve forex. This was an effective tax on the rest of the world, a tax capitalised in to US stock values, all of which Buffett owned.

That’s why Buffett is so gushing in his praise for the US economy. There’s none like it in terms of range and diversity. But there is also no other that gets a free kick like the US does.

Buffett’s genius is in having the patience and the stock selecting skills to sit back as well as let the magic of adding to work. Few of us have this type of luxury.

Also, Aussie companies don’t have the same scope for development as US companies. You can’t just sit back and personal an Aussie stock for 10 or 20 years and let the development take care of itself. Our economy is too small, too narrow, as well as too cyclical.

I found myself buying stocks that I thought had been cheap…only to see them drop by another 30% or so. Value investors think this is great, and that you should buy more! However i found that ‘averaging down’ was the fatal flaw in value trading.

I also found the ‘Buffett’ worth approach hit and miss. Some stocks went on to do very well, and some stocks turned out to be duds…their high returns on equity a short term mirage.

There had to be a better way, I thought. A way of continuing to invest properly by ‘buying low’, but also protecting personally against common mistakes.

Then I read Reminiscences of a Stock Operator. Written by Edwin Lefevre, it’s a book about the experiences of Brian Livermore. Livermore was a Wall Street investor in the early 1900s. You think financial markets are volatile now! Back then there were no central banks to appease investors at the first sign of trouble.

Livermore didn’t care about value. He cared about ‘the tape’. If stocks ‘acted well’, he bought them. If they continued to ‘act well’, he bought more. A stock ‘acted well’ if it went up. Simple as that.

What Livermore was really saying was that he invested with the trend. If a stock had been going down, he got out.

After absorbing Livermore’s lessons (and having discussions with our own ‘Quant Trader’ Jason McIntosh), I began to realise further how flawed worth investing is. Buying reduced is fine, but it’s not fine to buy lower, and lower…before you run out of cash or confidence.

A strict adherence to ideals doesn’t take human feeling into account. A stock may look like good value, but if the trend is down and sentiment is actually negative, why stand in the way in which? Why not be patient, wait for the trend to exhaust itself on the downside and buy on the way support?

It sounds so simple which i can’t believe it took me such a long time to work it out.

But I guarantee you, if you go back and check out every stock you misplaced money on, it will be because you bought into a downtrend or you didn’t escape when the trend turned from bullish to bearish.

I know I’m no Buffett. And I’m not a investor in the sense that Livermore was. However by combining the lessons from all of these two disparate approaches, you are able to become a much better investor. Tomorrow, I’ll show you how…

Regards,

Greg

The Earth, as I’m sure you know, has a magnetic area. Now I’m no professional, but if I recall my senior high school geology correctly, this is generated by churning liquid iron close to the solid core of our world. This magnetism results in the Earth having a northern and a south pole.

And that’utes why you can depend on a compass needle to point north. A fact that’s come in quite handy for those moving uncharted territory in the days before the Gps navigation.

But, according to Scientific American, every few hundred thousand years the magnetic rods flip. That means that your compass needle will point south instead of north. And, according to the article, ‘Earth’s permanent magnetic field flip could happen sooner than expected.’

But don’t go throwing out your own trusty compass just yet. Even if the flip does happen sooner than expected, we’re still talking hundreds of years from now.

Why do I bring this particular up? Because a number of the editors have done their own magnetic area flip recently. And this hasn’capital t taken hundreds of years, either.

The magnetic field flip

‘You’re traveling through another dimension, a dimensions not only of sight and sound but also of mind and heart. A journey right into a wondrous land whose boundaries are that of feeling and imagination. Look quickly. That’utes the signpost up ahead — your subsequent stop, The Twilight Zone!’

The Twilight Zone, CBS, 1959

Over the last few weeks here at Port Phillip Publishing’s headquarters, quite a few editors’ investment compass needles have moved highly away from their magnetic northern.

Perhaps the biggest shift came from Kris Sayce. For years he’s been bullish on the stock market, dismissing one false ‘crisis’ after another. And he’s been spot on. But over the last couple weeks Kris has taken a different read on the situation.

He sees a number of negative elements lining up that could well cause a marketplace crash as early as October. He’utes given the full details to customers of Tactical Wealth. Plus a number of inventory recommendations to hedge your portfolio against any major drop in the markets.

In short, it must do with rising interest rates as well as falling company earnings. And when Kris is right, this could well be the combination that drags the markets down by 20% or more.

Of program Kris hasn’t recommended you sell all of your stocks. In fact, over at Microcap Trader, Kris and analyst Shae Smith still uncover tiny Aussie listed companies that should do well regardless of how the wider market moves. Three of their four ASX outlined stocks are currently up. One of them by an eye-popping 196% since they tipped it on 23 June.

Our resident bear

Then there’s our resident bear, Vern Gowdie, the editor of Gowdie Loved ones Wealth.

You’re probably familiar with Vern. He’s a former financial planner who got out of the industry within 2006, after he cautioned his clients about the difficulty facing the markets. He was about two years early on that warning. But his clients — at least those who took their advice and moved their own wealth into cash — overlooked on the GFC market panic and the resulting 50% plunge in the ASX.

Since the launch of Gowdie Family Wealth two years ago, Vern has advised his customers to stay out of the inventory and bond markets, and out of commodities. He views the markets as extremely overvalued, supported by unsustainable levels of private and public debt, not to mention government intervention.

Vern’s long advocated a 100% cash placement, advising patience. After the market crashes, losing 50% or more in value, there will be plenty of discount hunting to be done.

That crash has yet to occur. So you can imagine my surprise when I read Vern’s August issue and discovered he has just made his first stock recommendation in nine years! (Cue the music from Twilight Zone.)

Now to be clear, Vern has not gone bullish. Far from it. But he does see some potential short term gains in one particular area. Here’s what he told his subscribers last week:

‘My criteria with regard to investing, are simple — low risk/high come back.

‘This is another way of saying buy reduced and sell high.

‘These opportunities do not come together everyday. You have to wait and wait some more for the buying opportunity. And then you have to wait around and wait some more for that market to eventually move the cost.

‘For more than a year and a half right now, I haven’t made any sort of investment recommendations to you — aside from my personal advice on how to get the best as well as safest returns on your cash — because the market prospects have all already been high risk/low reward.

‘But that has recently changed.

‘Although the truly low risk/high incentive prospects have yet to materialise, there is 1 beaten down commodity that represents the first opportunity to move part of our holdings out of cash, at least for a while.’

Vern’s also currently operating around the clock on a brand new project. I only just had my own close look at this last week. I can’t share any of the details along with you yet, but I can tell you that from what I’ve seen, this could be the most important investment advisory around australia.

We’ll fill you in on all the details towards the end of this month. Stay tuned.

Regards,

Bernd Struben,
Managing Editor, Money Morning

Yesterday I explained why I thought a person shouldn’t get too bearish on this market. Overnight, US stocks soared for the first time in a week on the back of Warren Buffett’s huge purchase of aerospace manufacturer Precision Castparts.

Even commodities lifted themselves up off the floor. Gold traded nearly as high as US$1,110 and finally appears like putting in a weak bounce following the big sell-off of recent weeks.

After a great rally yesterday, the Foreign market looks set for an additional strong session today.

Does this imply I’m right? Is the modification over? Kris Sayce and I ponder this particular very question in the second hit of our Facebook mini video clip series. Simply click on the screen shot below (and remember to ‘like’ it!).

Of course, I’ve got no clue what’s going to happen tomorrow or the next day. But that’s not necessarily a bad thing. In fact, knowing that you don’t know is a major advantage. It’s when you think you know how things will play out that you get into trouble.

That’s the reason why I’ve developed a new kind of analysis that fuses each fundamental and technical abilities. I’ve been testing and using it since November last year and so far, the results are extremely impressive.

You’ll hear more about how it works later this week. I’ve just finished putting a report together on it and plan to send it to you on the weekend, so watch out.

The big idea though is to not be too wedded to any 1 view. While it’s important to have a view, being too rigid can cause losses or missed opportunities. I wrote about this to my subscribers lately. It a really important subject to tackle if you want to develop being an investor so I’ll recreate some of it here…

‘Being a slave to your prejudices or even biases is the greatest mistake you can make as an investor. I’ll tell you a story in a moment that confirms this and recounts my biggest investing mistake.

‘Yet the finance industry and also the financial media make little attempt to genuinely educate investors towards falling into this snare. Rather, they take advantage of your feelings!

‘Perhaps that’s because investors enter the trap with such ease time and time again. And they put their poor decision making down to just about everything however their own failures.

‘But let me tell you: you don’t lose money in the marketplaces because you’re unlucky. And you don’t lose money because somebody did or said so-and-so. You shed because you’re trapped in a story of your own making. This trap is built out of inherent prejudices and ethical judgments about the way issues ‘should be’.

‘This is not meant to be the sermon. I’m saying this simply because I’m guilty of the same mistakes. Guilty of thinking the world is a mess, and that the problems that led to the 2008 crisis only have grown worse in the years since. Guilty of thinking that due to this, an even bigger stock market fall lies ahead.

‘More than that though, I’m guilty of thinking the future will, or should, play out according in order to my view of the world. What hubris to think I can tell the future!

‘We’re told good investors have highly held views — that they have confidence and make bold calls. And that is true. But good investors also know that they don’t understand. And they are ready to change their views if things don’t pan out the way they expected.

‘They are not locked into a narrative. Nor do they put their money where their morals are.’

Of program it’s not easy to put your biases aside and invest truly objectively. But it IS possible…and it’s easier compared to you think.

Last year, after considering long and hard on this, I developed a system of analysis that fuses two traditionally separate investing methodologies to test my opinion against the market’s view. Yesterday, I said I’d show you how you can use this particular ‘fusion method’ to buy and sell person stocks.

Let me show you how it works. An example is in the energy sector. Essentially, many large Aussie power stocks look vulnerable. That’utes because they’ve spent billions investing in massive liquefied natural gas (LNG) projects over the past few years. More to the point, they invested in the expectation of higher oil prices.

Now, just as individuals projects kick off, the price for LNG (that is linked to oil prices) is really low that the returns on the capital invested will be very reduced indeed. More than likely, the results will be below the cost of funds. Such an outcome doesn’t bode nicely for share price performance.

But because these are such large and longevity projects, companies will continue in order to produce despite lower prices. It’s not as if they can just sit down and wait for prices to recover.

So the basic story is negative. But do the charts back this view up? Indeed they do. Let’s have a look at one of the more susceptible Aussie energy stocks, Santos [ASX:STO].

It has a sizable exposure to new LNG production. This should lead to a big jump in earnings. But it’s unlikely to occur. The market is telling you to be very cautious. Have a look at the graph below:

The first warning sign that something was wrong with STO occurred on October 2014. I mentioned ‘shifting averages’ yesterday. They remove the noise that comes from daily price unpredictability. They are a good indicator from the underlying trend. As you can easily see in the chart, the moving averages crossed over in October last year, signifying the stock price was in the downtrend. This was a signal to escape.

Then the stock collapsed in The fall of and December before the bottom pickers came in.

But here’s the problem. The buyers were swimming from the tide. They were fighting the trend, that is always a low probability outcome. Despite a series of bounces in the share price because December 2014, the trend continued to suggest down.

And just recently, the inventory made a new low. This confirms STO’s downward trend. Trying to pick the bottom is a harmful game. I know, because I’ng played it before. Sometimes you win, sometimes you lose.

In this situation, the ‘fusion method’ of analysis tells you to stay away from the sector. Poor fundamentals combined with an adverse technical outlook is a red-colored flag.

And it’s not just Santos. Woodside [ASX:WPL], Oil Search [ASX:OSH] and Origin Energy [ASX:ORG] are all in downtrends. WPL and OSH are close to producing new lows while ORG recently broke down to new lows.

The message here is that this is not a stock specific issue. The whole LNG sector is under pressure. Avoid these types of stocks for now. They may be great buys now, but you’lso are taking a big punt. Wait for the pattern to turn first.

I’ll explain the best way to spot a change in trend in a few days. For tomorrow though, I wish to focus on something I discovered very recently — the fatal drawback in value investing.

Regards,
Greg

When an investment fund describes by itself as ethical, I’m always curious. Who decides what is ethical and what’s not really? And why are some teams of ethics perceived to be superior to others?

Those questions came to mind when I read how?superannuation fund Australian Ethical has concluded that agriculture is not sustainable. Therefore, it will not be investing in any food production companies. A couple of other funds have made similar noises.

The choice has been widely criticised in the media as unrealistic and ridiculous, given food production is fundamental to our lives. It is ridiculous, but my interest is in the company’s claim that it is acting ethically. What are the values behind claiming? Are they values that the everyone else should accept?

You get a sense of Australian Ethical’s values from the fund’s website. It says it does not invest in things like tobacco, uranium or fossil fuel mining, exploitation of people or old growth forest logging, as well as says it will not invest in organisations that pollute land, air or water, or destroy or waste non-recurring resources.

Organisations that ‘extract, create, produce, manufacture, or even market materials, products, goods or services which have a harmful effect on humans, non-human animals or the environment‘ will also be out.

It supports the development of sustainable land use and food production, the preservation associated with endangered eco-systems, and the dignity as well as wellbeing of non-human animals. It also aspires to build a ‘new low-carbon economic climate, fund medical breakthroughs, technology breakthroughs, efficient transport and more.‘

And it seeks to use its influence to improve ‘ethical behaviour’. In other words, such as missionaries promoting religion, it is so persuaded of the merits of its integrity it feels entitled to distribute them.

One may question why anyone would oppose zero emission nuclear energy, poverty-relieving coal-fired electrical power and renewable forestry. However, I don’t think I’ve ever met anyone who purposefully advocates activities that are harmful to the environment or animals. Definitely all the farmers I know are ardent environmentalists, and caring properly for livestock is simply good business.

What it comes down to is that the fund has a particular concept of durability, perhaps the most over-used and misused word in the English vocabulary. Everybody uses it, but there is no agreement as to what it means.

A manager might suggest that maintaining the current business course isn’t sustainable; a lawyer might dispute a particular case is not environmentally friendly; an athlete might declare a certain training program to be unsustainable; and increasingly, the impact of an exercise on the environment might be described as unsustainable. The only thing you can be sure associated with is that being ‘unsustainable’ is not great.

It has long been green dogma that modern agriculture is not sustainable. Conditions such as monoculture, factory farming as well as industrial agriculture are used in a derogatory sense to reinforce that view.

Plenty of people, either in a nature of compromise or because they do not know any better, go along with the suggestion that agriculture should be ‘more sustainable’, the assumption being that it isn’t now.

My preferred definition of the word originates from former Norwegian Prime Minister Gro Harlem Brundtland, who said, ‘Sustainable development is development that fits the needs of the present without compromising the ability of future generations to meet their own needs‘.

Based on that definition, modern farming is not only sustainable, but more sustainable than it has ever been.

Here in Australia we’re often informed that anything done by people to change the environment is proof in itself of unsustainability. The key presumption behind the term ‘wilderness’ is the absence of human impact, or at least of white Europeans.

That thinking is less common outside the country. A farm owner in Eire once told me of proof of human settlement in the area returning 5000 years. He also said that his farm, which has been in the family for generations, could run 20 cattle in the 20’s, 50 in the 1950s, One hundred at the turn of the hundred years and was now up to 120. He expects it to be running 150 within a decade.

It is obvious his farm has not only been capable of providing for its previous and present owners, but will continue to do so for future generations (in this case the actual farmer’s children) as well. In other words, it’s long been sustainable and is environmentally friendly now.

What’s more, it’s the utilization of modern technology — so despised through green dogmatists — that makes this feasible. Vaccines (increasingly the product associated with genetic engineering) and chemicals help keep cattle healthy. Meadow management using hybrid seed products and chemical fertiliser indicates there is enough food on their behalf. High tech nutritional supplements ensure they receive a balanced diet. Advanced synthetic breeding technology means cows produce a calf each year which the calves grow quicker or produce more milk than ever before, and that there are more heifer than bull calves on dairy farms.

If agriculture is to feed the world, it needs more durability like this. It will be modern technology, not really a return to the last century or beyond, that ensures the soil and water are preserved. Genetically modified crops and pasture plants, for example, are not only seen fundamental to raising the nutritional value of pasture, but combating desertification and drought.

What’s needed is recognition that human impact on the environment is not only unavoidable but mostly highly good. Moreover, the concept of virgin backwoods untouched by humans should be exposed for the lie that it’s.

Australia’s ‘old growth’ temperate forests are all regrowth following repeated burning through Aborigines over thousands of years. The bison-grazed plains of North America were reprocessed by Native Americans long before Men and women showed up. Many of the mist-shrouded treeless grasslands of the exotic Andes are the result of burning as well as grazing after locals cut down the natural forests centuries ago.

It is a simple fact that nature is resilient and adaptable. In a thousand years the farms of today will be producing far more meals and fibre they do now. That makes them sustainable, and provides the lie to the ethics of Australian Ethical.

There is completely nothing ethical about leftover rooted in the past, using outdated technology to produce food that lots of people cannot afford to buy. Indeed, by my ethical standards, Australian Ethical is unethical in its refusal to invest in modern agriculture and contribute to the supply of high quality, nutritious, affordable meals produced more sustainably than ever before.

Which raises an interesting question: in the event that everyone decided investing in farming was unethical, we would quickly find ourselves in an ethical problem. Given an inevitable shortage of food, which fund manager don’t let kill and eat first?

Regards,

David Leyonhjelm,

Contributor, Money Morning

Editor’s Note: David Leyonhjelm is a normal Money Morning contributor. He has worked in agribusiness for 30 years and is the NSW federal senator — and somewhat of a controversial figure. Donald represents the Liberal Democratic Celebration in the Senate. The LDP is a libertarian party which advocates individual freedom and choice, and limited government.

From the Port Phillip Publishing Library

Special Statement: Nitro Stocks Completely unknown to most Aussie investors, there is a special kind of ASX investment that can generate more money in a week than most people earn in a year! They’re called ‘Nitro stocks’ and they can cram 20 or 30 years of market earnings into just a few months. Mike Volkering says, ‘It’s like taking a slow-moving bluechip and pumping it full of anabolic steroids!‘ Sam’s spotted three stocks on the verge of hitting their ‘Nitro-phase’. And if you want in, you’d better hurry!

Everyone loves a bargain. It’s a excellent feeling to lock in a big discount.

We naturally link affordable prices with opportunity. That’s how we’re wired. And in many situations this works.

The Punching Day sales are a classic. Long lines snake about street corners. The prospect of obtaining a deal is irresistible. Individuals want to buy as soon as the price falls.

But should we approach stocks the same way?

Possibly the most famous stock market maxim is actually ‘buy low, sell high‘. The saying is all about as old as the marketplace itself.

This is largely a statement from the obvious. That’s how you earn profits — buying low and promoting higher. There’s nothing profound in that.

But here’s the catch. How do you determine buying low?

The mistake in buying low

You see, many people believe buying low means purchasing when prices are falling. This strategy typically works well for consumer goods. But how does it fare in the stock market?

Well I’ve done some back-testing to discover. I’ll tell you about this in a moment. But first I want to recap last week’s report.

You’ll remember the discussion involved buying strong stocks. This was in response to a member’s concern that Quant Trader signals some stocks from record highs. His thinking was that buying after a big move is extremely risky.

As you realize, I ran a back-test to obtain some data on this. The test had two new rules for buy signals:

1. A stock must be at a three 12 months high (or greater)
2. It should be at least 300% above its 3 year low

Here’s the chart you saw last week.

It turns out this was a successful strategy. You could do instead well just buying shares at three year levels.

This isn’t any great surprise. Buying stocks at multi-year highs is trading with the trend. And the odds favour a pattern will keep going.

Last week, We said I’d show you some examples. Let’s do that now.

Stocks that double, and keep going…

These three stocks are from the back-test which produced the above graph. This is why it’s a mistake to avoid stocks simply because they are strong.

The first stock is Aurora Oil & Gas [ASX:AUT]. It ceased trading last year following a takeover.

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The system’s buy sign was at $0.95 on 9 August 2010. The shares were 850% off their 2009 low. AUT had also just hit an eight year higher.

Just think for a moment. Would you think about buying?

Let’s see what happens next.

Strength led to more strength. The system captured a 169% gain next 12 months.

The next example is a financial services company — Credit Corp [ASX:CCP].

Here’s the actual chart.

CCP was at an all-time higher when this buy signal had been identified in late 2004. The actual shares were also 720% above their 2000 low.

Buying at this stage runs counter to the better judgment of many. But the data suggests this shouldn’t be the situation.

Let’s check out what happened.

This stock had a lot further to go. The positioning made a hypothetical 245% in less than three years.

Last but not least is Greencross Veterinarians [ASX:GXL].

This is the chart.

The buy sign was at $2.43 in August 2012. The shares were just hitting an all-time higher. This was also 305% above the stock’s reduced two years earlier.

The result tells a familiar story. Here’s the ultimate chart in the series.

This trade ran for just under 2 yrs. The end result was a 220% gain. Pretty good for buying at a record higher.

There is no doubt about it — buying into strength can lead to big gains. You’re more likely to dual your money when trading with the trend. The path of least resistance is up.

It’s important to note that this won’t always happen. There’ll be other times when the stock becomes lower the next day. That’s why there exists a stop loss. It limits the risk.

Okay, so this brings us to my opening question.

Should all of us buy stocks that are slipping in value?

I found a fascinating article while researching for this update. It was published by a popular local investment advisory last November. The crux of the story was that stocks buying and selling near a one year reduced are potential bargains.

Yes, they may be. The wreckage of the past can lead to excellent opportunities. But I would want to see signs of an upward trend before buying. That’s the Quant Trader way.

The writer didn’t seem too fussed by this fine detail. He identified three slipping stars as potential buys: Crown Resorts [ASX:CWN], Woolworths [ASX:WOW], and The Reject Shop [ASX:TRS].

Guess what. All three are lower today — despite the All Ordinaries buying and selling higher.

Buying at a one year reduced seems more of a snare than a bargain. But this is simply a small sample. We’re going to need a bigger test.

So let’s reverse the strategy you saw earlier. This time I’m going to set the actual algorithms to only buy stocks at a three year reduced (or lower).

Here’s what happens.

This shows the hypothetical profit from the process. The date range is One January 2000 to 24 April 2015. It assumes placing $1,000 on every purchase signal.

The outcome is clear. This tactic is a total failure…it’s got nothing to show after Fifteen years.

Buying as prices tumble below three year lows is no bargain. Back-testing indicates it’s much better to jump on board an established trend.

As they say, the trend is your friend!

Until next week,

Jason McIntosh,

Editor, Quant Trader

Editor’s note: It’s now eight months since Quant Trader began giving live signals. And I can say this — the strategy of buying into strength is working BIG time. There are now 12 trades displaying a profit of more than 70%. The largest gain is 164%. Find out how YOU can industry this way here.

Blue chip stocks are loved by the masses. Almost every extremely fund in Australia will have a large selection of — if they’re not completely comprised of — blue-chip stocks.

These companies are reliable-ish. They’re usually predictable, they get a large amount of coverage in the mainstream press, and over time they perform pretty well.

Investing in blue chip Stocks you’d hope to obtain returns per year like 8-9% perhaps if they’ve had a great year you might get 12-13% for example.

The table below shows the overall performance of the 10 biggest stocks on the ASX for the 2013/2014 financial 12 months.

 

Company	Sector	Share price growth
Westpac (WBC)	Financials	17.6%
Woodside Petroleum (WPL)	Energy	17.3%
Commonwealth Bank (CBA)	Financials	16.9%
ANZ Financial institution (ANZ)	Financials	16.7%
BHP Billiton (BHP)	Materials	14.4%
Rio Tinto (RIO)	Materials	13.3%
ASX 200	INDEX	12.3%
NAB (NAB)	Financials	10.4%
Telstra (TLS)	Telecoms	9.2%
CSL (CSL)	Healthcare	8.1%
Woolworths (WOW)	Retail	7.3%

 

This table was put together by the Commonwealth Bank within their ‘MyWealth’ section of their website. In this particular article they also included this little gem of a quote:

‘The ‘Blue Chip’ companies in the table above tend to be popular among investors because they’re known to them, often pay dividends and are generally perceived to be more steady than smaller companies.‘

Interestingly they throw in the word, ‘perceived’. The reality is azure chips also come with a reasonable degree of risk. All purchase of stocks does.

And it forces to you think about where your own risk/reward trade off point exists. How much risk are you willing to accept with regard to return? Perhaps more importantly, are you happy to accept boring returns with an element of risk?

Or would you like life a little more around the wild side? A little more exciting? A lot more opportunity for light-speed stock increases?

The facts don’t lie when it comes to multiple digit returns

The CBA article continues to explain that the ‘best performing company around the ASX 200 during the 2013/14 financial year was…Northern Star Resources‘.

Their overall performance over the period was 116%.

That’s great. That’s really good.

And you’d be pretty happy if you had Northern Star Sources [ASX:NST] shares.

But of the 200 firms that make up the ASX200, Northern Star was the only company to have triple figure gains within the year.

That’s right, for that financial year your chances of an ASX stock within the top 200 companies achieving over 100% gains was one in 200.

More recently there have been Fifty-one companies make over 100% gains in the last 12 months. I’m not making this upward. This is fact. Indisputable fact.

For example as of 31 This summer, Hansen Technologies [ASX:HSN] was up 108%. Impedimed Ltd [ASX:IPD] was up 286%. Aeris Environmental [ASX:AEI] had been up 328%. And Alexium International Group [ASX:AJX] was up 702%.

There are 47 others but I won’t lose interest you with them all. So that as I’m sure you’re well aware, past performance is certainly no sign of future performance.

Of these 51 though, there are a few azure chips. Well two to be precise. Blackmores [ASX:BKL] and Qantas [ASX:QAN].

Now you’d never have thought Qantas would be up 180% to 31 July this year. But falling fuel prices certainly possess helped the embattled airline.

Anyway, that’s two blue chip businesses of 51. In other words, the bulk of the companies making turbo charged returns in a short space of time aren’t blue chip businesses at all.

Many of them have market caps of tens and hundreds of millions. Not billions, much like your typical ‘safe’ Blue Chip stock.

Here’s the thing. You might like azure chip companies. The single number growth or at best low double digit growth companies that from the ASX 200, ASX100 or ASX50 might be right up your alley.

You might such as the slow and steady approach to things. Dull, simple, reliable, sluggish. That might be your game. And credit to you, if that’s what works for you that’s absolutely fine.

But sluggish and boring isn’t everyone’s game.

Small-cap stocks make for a thrilling ride

For some people, fast, exciting, foot-to-the-floor may be the way they want to live their life, and make their money. Of course there’s no such thing being an overnight success. And making a million dollars overnight is the stuff of 2am tele-sales ads.

But the proof is there that you can invest in companies that can make triple digit returns in 12 months. Longer term, two, three years later on those triple digit returns can turn into quadruple digit returns.

And in the right companies, using the right strategy and the correct products and technologies perhaps one day just a few of them will turn into quintuple digit gains.

You might say that’s impossible. But people thought that about Cisco, Amazon, Apple and Oracle during the ’80s and ’90s.

Now when it comes to Aussie stocks, the fun, the excitement, the Nitro power stocks tend to be small-cap stocks. These are the companies that would be the real up and comers on the ASX. They’re often the kinds of companies that you’ll never hear about from CBA research. You’re mainstream broker often won’t go near these simply because they come with a high level of risk.

That’s the trade-off you have to make when you start to think about small-cap stocks. You might be in collection for some unbelievable gains. The type of gains it takes most blue chip stocks five, Ten years to make (some will never help to make triple digit returns). But they’re also in line for some crazy fluctuations.

That means a stock could shoot up 20% in a day. It can also imply the stock sheds 20% in a day. And then bounces back. And then goes up, down, up again and then it could shoot off. It is a genuine rollercoaster ride.

I’ve observed one company in my expense advisory service rise 16% in a week, in order to fall 11.5% the week later on. It then fell another 22% in the next two months. And in the last month it’s gained 128%.

That’s the kind of face-melting pace these small-cap nitro stocks can move in.

If you ignore the potential associated with small-cap stocks on the ASX you’re potentially missing out on some of the biggest and finest investment opportunities there are in Australia.

But as I said earlier, it’s not for everyone. Simply, you’ve either obtained the intestinal fortitude for this, or you don’t.

Regards,

Sam

Let me start with a question.

Your vehicle has been working without any sign of trouble for any year. Do you expect it to keep running smoothly…or would you worry about a breakdown?

Most people most likely wouldn’t give it a second believed. Chances are the car will keep working for a lot longer. Something could go amiss tomorrow. But odds are it’s not going to.

Many things in life are the same. There’s a natural tendency for events to follow a steady course.

Sure, the cycle will change — life has its ups and downs. But a change in fortune can take a while.

The stock market is no different. It can remain bullish or even bearish for lengthy periods. Also can individual stocks. The company’s share price can rise for years.

Think about this. Suppose a regular has been on the rise. It’s just hit a three year high. What’s more, the share price is up at least 300%. Would you consider buying this particular stock?

People typically view this in one of two methods. Some will look at the past as well as project it forward. Other people will think the shock has run too far as well as believe it’s about to fall.

Which do you thinking is the better option for making money?

I’ll answer this in a moment. But first have a read of this. It’s an email I obtained last week.

‘I have been reading the Quant Trader for two weeks now. To be honest, it is not what I thought. So far each of the buy indicators I have received have been in a record high on the day of the signal.

‘From reading the lead up to purchasing, I was of the opinion the actual Quant Trading computer was picking up trading type stocks in a low, not at a record high.

‘I have paid a lot of money for what I feel is high risk buying at record highs. I am more comfortable buying at a more speculative level then this danger level.‘

Member, Tony

Let me start by stating this. Quant Trader identifies stocks from various stages of a pattern. Some will be at all-time highs while some will be just beginning the recovery process.

Quant Trader is also a medium phrase strategy. It’s not aiming for increases over one or two days. The aim is to capture trends that last many months.

That said, this is a great question. I think the reasoning would make sense to many people. It seems prudent to avoid stocks after a big run.

But there’s a problem. Doing this filters out many of the best performers.

Here’s the one thing. A stock trading at a multi-year high is clearly a strong stock. But strength isn’t a good indicator of approaching weak point.

Sure, all bull markets finish. A well performing stock might break down tomorrow — but it probably will not. The path of least resistance is up.

Let’s go back to my earlier question. Who’s more suitable for making money? The person that can project forward, or the one who thinks the market has run too far?

Well, it’s the former. This type of mindset makes it easier to ‘jump aboard’.

You see, the odds favour a trend continuing. And some continue for a very long time. Actually, trends often run beyond almost anyone thinks possible.

Now allow me to ask this question again.

Suppose a regular has been on the rise. It’s just strike a three year high. What’s more, the share price is up at least 300%. Would you consider buying this particular stock?

Think about this for a moment. What’s your natural tendency?

I suspect many people would think they have missed it. Some might even be thinking about shorting opportunities.

Rather than speculating what might happen, I’ve done some back-testing. It’s always good to pull a few statistics into a discussion.

What Used to do was modify Quant Trader‘s algorithms. I set two new criteria for a buy signal:

1. A stock must be at a three year high (or greater)
2. It must be at least 300% above its 3 year low

So what do you think happens?

It’s actually quite interesting. Have a look at the graph below.

This shows the hypothetical profit from the strategy. The date range is 1 January Two thousand to 24 April 2015. This assumes putting $1,000 on every buy signal.

Buying stocks at a multi-year high is a effective strategy. You’ll also notice the strategy’s earnings are near an all-time-high — something that can’t be said for the All Ordinaries.

So don’t be concerned about buying at a multi-year high — the trend is on your side. You’ll find it often pays to be positive when others are nervous.

Next 7 days I’ll show you what happens when you only buy stocks buying and selling at a three year reduced. I think you’ll find the results fascinating.

Until then,

Jason, McIntosh,

Editor, Quant Trader

Editor’s note: Quant Trader’s algorithms have detected a number of new opportunities. They are all trending higher, and have the potential to run a long way. You’ll be acquainted with a few of the companies. But many tend to be less well known. These are often the ones with the greatest upside. Find out more here.

With record low interest rates, everyone’s looking for the best income boost.

Term deposits are at a record low. We know.

Recently, we received the latest term deposit rates from AMP. A six-month term deposit pays 2.9%.

Not so long ago, the same term deposit paid more than 5%.

Lower prices make it hard to earn an income. So folks have to take more risks.

But if you take more risks, you need to manage the risk.

We’ll explain a simple way to manage risk and improve your income today…

We’ve often written about what we call ‘punting money’ as well as ‘safe money’.

We advise folks to split their investments into 2 groups — ‘safe money’ such as gold, cash and dividend shares. And ‘punting money’ such as growth stocks, small-caps, microcaps, futures contracts, and speculative options contracts.

As an apart, note that we put a focus ‘speculative’ options contracts. Not all choice trading involves speculation.

We’lmost all reveal more detail on that when Matt Hibbard introduces you to a new way to make extra income from stocks you may not even own.

Sound interesting?

We’ll reveal more details quickly. But if you want to be among the first to get into this new service, that can be done by taking out a Platinum Alliance membership here.

And keep in mind, this is the last ever time that we’ll make Platinum eagle Alliance membership available. The doors close for good next week — no exceptions. Details right here.

But getting back to managing risk, even within the ‘safe money’ and ‘punting money’ segments, you can still manage your danger according to each investment kind.

If you use stop orders, you’lmost all probably use them in a different way depending on whether you’re investing in a big blue-chip stock or a tiny microcap.

And in the event that you’re managing risk with a dividend portfolio, you may use position sizes to help you achieve an overall level of yield for your profile.

For instance, let’s say you had a $4,000 portfolio, and also you want to earn a decent income from stocks. You could take that $4,000 and put it all in to one stock or a quantity of stocks that each paid a 5% dividend yield:

In this scenario, you’d earn $200.

Alternatively, you could take your $4,Thousand and spread it across four stocks, each paying a different yield. Your profile could look like this:

In this case, you have a higher yield and income. You’re earning $370, or even 9.25% on the same amount of cash.

However, this could also mean that you’ve elevated your risk. Typically, (but not always), a higher yielding stock can mean a greater amount of risk.

So, what can you do? Simple, you can alter the numbers. You can do that till you’re happy with the amount of funds invested in each stock and the average income yield. Your own portfolio could look something like this:

In this case, we’re following an average income yield of around 7%. But rather than putting all the money in the stock that pays a 7% dividend yield, we’ve put most of the portfolio into a inventory yielding 5%, and then smaller amounts in stocks with higher yields.

You see? There’s no single way to do things when it comes to danger management, or even trying to make money stream. You have to play around with suggestions and your capital, until you’re comfortable.

Although, even then, you shouldn’capital t remain static. You should always pay close attention to what’s going on in the markets, and most of all, not be scared to adjust your thinking if your view of the market has changed.

Cheers,

Kris

PS: Income specialist Matt Hibbard knows all about managing danger for income investors. Visit here to find out Matt’s latest ideas on assisting investors boost their income

Here in the UK the latest political debate is front page news. It’s nothing to do with any economy. There’s no mention of ISIS, immigration, Greece, the EU, employment or elections.

No, the front page news here in the UK is all about disgraced Lord Steve Buttifant Sewell.

Lord Sewell sits in the House of Lords. If you do not know what the House of Lords does, here is a crash course.

The House of Lords may be the second chamber of United kingdom Parliament. It helps to make and shape legislation (laws) here in the UK. They keep the government under control by scrutinising bills that have undergone the House of Commons.

To become a Lord you’re appointed. You don’t go through the public vote like for the House of Commons. That means any schoolboy mate, person of prosperity or chum can get the gig. Sounds dodgy in the get go really…

Anyway, good old The almighty Sewell is one of those appointed Lords that has an influence on the laws and regulations of the UK. A powerful placement. But he just got the actual sack. Why?

Well there’s nothing like a good alleged night in a taxpayer subsidised apartment with two hookers along with a heap of cocaine to get one in trouble. Oh and also the fact there are photos and videos to supplement the tabloid story probably helps the ‘disgraced’ component.

Of course the UK isn’t isolated when it comes to political scandal. Back in Australia, Bronwyn Bishop, the speaker of the House associated with Representatives, is in her own small pot of boiling drinking water.

Dodgy politicians is a global epidemic

Getting through Melbourne to Geelong can be a horrendous journey. So rather than take the route most normal people do, via car, Bishop went in style. Chartering a $5,227 helicopter, Bishop just sailed over the plebs listed below.

The thing is, the trip was to a party fundraiser event. Not any kind of official responsibility. Then she claimed the flight as an expense. Which means the taxpayer, you and me, footie the bill.

Ah the life of a politician hey? Helicopter flights, cocaine and hookers.

But there’s plenty worse available, believe it or not.

What about over in Malaysia at the moment. The Malaysian Premier, Najib Razak, is currently coping with allegations that around US$700 zillion from a state investment account ended up in his personal company accounts.

And then there’s the US. Oh, the united states…Donald Trump is running to guide the Republican Party in the US. Which means, one day he could become leader.

Seriously.

This is a guy who just a couple weeks ago in a speech said,

‘[Mexico] are sending somebody that has lots of problems, and they are getting those problems to us. They are bringing drugs, and getting crime, and their rapists.’

It’s almost silly that these people have such significant influence on the world.

I mean really, what good are these folks? They sit in positions of power with uncounted influence over how countries operate. They have power to influence legislation, which is supposed to help guide all of us, the average citizen, on how to reside.

With people like these in charge, it’s no wonder the world is in such a messed up situation.

But what can you do about this? Can you stop high level political figures from manipulating the system? Are you able to stop them from rorting taxpayer money? Can you stop all of them from being complete idiots?

No, you can’t.

And that’s the most important point to all these scandals you read about every day. When you see Bronwyn Bishop hovering within the city in a chopper don’t get mad. Understand there’s nothing you can do.

So shut it out. Don’t get mad, get even.

Create your own energy, create your own wealth

The best way you are able to feel better about Bronwyn Bishop’s helicopter fetish is to observe her down at the nearby Helipad. I reckon half the main reason people are annoyed at this is they don’t fly by chopper themselves.

I reckon if you travelled to work or to your holiday house in a chopper you wouldn’t give two hoots.

If you heard about the Malaysian Premier looting $700 million from a debt-laden fund while looking at the millions with no debt in your own portfolio, you’d say, ‘Good luck for you Mr. Razak. You’ll need it. I do not.’

Here’s the thing. You aren’t going to travel by chopper working ‘for the man’ your whole life. Maybe you could easily get there after oh, I don’t know, state 1,000 years.

The easiest way you can end up travelling by chopper is through investing. The great thing is the opportunities to invest in firms that could return triple determine gains are all over the location. You’ve just got to know where to look…or who to listen to.

Take for example my colleague Jason McIntosh, who runs the most amazing trading service I’ve come across, Quant Trader. Jason has an very left-field way of zeroing in upon future stock superstars at that golden time when virtually no one knows about them.

He calls these stocks ‘The Outsiders’. When you hold the secret of what Jason calls ‘outsider trading’ and how simple it is if you have a calibrated computer algorithm crunching the data and performing the scouting for you, you’ll never look at trading in the same way again.

But trading might not be your thing. And that is fine it’s not for everyone. That doesn’t mean the opportunities stop there.

Another one of my colleagues, Ken Wandong, head up New Frontier Investor. Ken is from China. He knows the actual lay of the land, they know the people, and he knows the markets. You might have never invested in that region before. And today you’re quite likely petrified of it. That is, if you listen to the news you hear on the mainstream news stations.

But Ken is far savvier than the typical noise you get within the mainstream. As I said, he’s on the floor. And he believes the international map of corporate power is being rewritten.

In 20 years’ time it will look almost unrecognisable. And it could provide similar investments returns within the next 10-25 years, to those that were made from the rise of America within the 20th century. Gains like 11,095%, 20,621% and 50,760%. These were made from the last megatrend. Ken’s New Frontier Investor is focussed on the next megatrend.

And with the uncertainty in China, now might actually be one of the best times to look at investing in this market.

My point is you may never have an influence in the hallowed halls of Canberra, Washington or Westminster. You’ve got to look out for yourself. You can just properly set yourself up by trading. It’s that simple.

So you can do nothing about it, or you can take your personal action and get even, as well as hopefully rich.

Regards,

Sam

‘Will I ever make it to a higher level?’

It’s something many people ask on their own at some point. I know I definitely have.

This thought can creep in when a goal seems almost beyond reach. We think about where we are — then where we want to be — and wonder how we’ll ever get there.

Now this can apply to anything. It could be trading, business, sport, or education.

The fact is, most successful people start at the bottom. They then work their method to the top, one level at a time.

I often get emails from individuals starting out in the markets. A couple of things usually stand out — basic knowledge and a modest capital foundation.

Many of these people worry about the scale of the task. They wonder if they’ll ever be meaningfully successful. It’s a bit like standing at the base of Everest and searching up.

I know how this feels — I’ve been there. Every trader has…from the part-time speculator to the New York hedge fund superstar. At the rear of every successful trader there’utes a modest beginning.

It’utes funny how random events may take you down an unexpected route. A few years ago I was listening to ABC Radio. I tuned in by chance during a trip to the businesses.

It turns out there was a talk display in progress. The special visitor was former Test cricketer Justin Langer. This was a fascinating interview. It had a lasting impact on the way I think.

Justin was talking about his cricketing career. It had been a tale of contrasts.

The first half of his career regularly saw him in and out of the team. He was continually falling short of anticipations. His career was frequently on a knife’s edge.

But the other half was radically different. Justin’utes star was soaring. He went on to become one of the most effective opening batsmen of all time.

How did he do it?

This is the part I enjoy most. I love listing to people’s stories…I always learn new things. And this was no exception.

The centrepiece associated with Justin’s story is a simple book. It was a gift from the teammate while on tour. Bieber credits this as a crucial event in his career. Their whole way of thinking changed.

The book became a constant companion. Bieber said he would keep it on his bedside table. Every night he would read one of its short chapters…just a few pages.

I guess you’re wondering the book’utes name. Well, it’s uncommon. You probably won’t read about it anywhere else this weekend.

The name is Zen in the Martial Arts by Joe Hyams. It was written back in 1979.

So what do martial arts relate to cricket…or trading, for that matter?

Well, Zen within the Martial Arts isn’t about drills as well as technique. The focus is more existence and philosophy…creating a positive from a negative.

I always give consideration when a high achiever gives away a ‘secret’. You never know where it’s going to lead.

So I went online after the interview to look for the book. Sure enough, it was there. Amazon had it in stock for a bargain basement $12.95. The biggest expense was shipping!

Zen within the Martial Arts is an outstanding book. Its 135 pages contain a few real gems. Some of the section titles are‘Conquer Haste’, ‘Active Inactivity’, and ‘Lengthen Your Line’. It was mind-opening.

I purchased Zen in the Martial Arts in 2009. It’s still clear in my mind six many years later. I often find myself teaching my kids a training from the book.

Let me tell you about one of the chapters. It describes an excellent way to look at progression. This can really help put your ability into perspective. I think about this all the time for all sorts of products.

The chapter’s name is ‘The Masters Have Masters’. It describes the entire process of getting good at something.

The author, Joe Hyams, describes his own learning experience in the martial arts. He talks about ability as a never-ending staircase with countless landings, or plateaus. The landings signify times when he would stop improving.

Hyam talks of the frustration of being stuck on a landing. He says it was discouraging when his improvement would stall. And he found he wasn’t alone…the experience had been common to many.

I’m one of these people. There have been many plateaus in my career…periods after i was only marking time. And yes, I found those times frustrating.

But life is often how we frame it. The right perspective can make all the difference.

Hyams recalls his mentor’s way of coping with the plateaus. When discouraged, he would go to watch the actual beginners train. This would remind him how far he had already come.

He would then watch the black belts. This would then inspire him by seeing how much better he could be.

Eventually he was a dark belt himself. But which wasn’t the top. His master was higher, and his master’s master was higher nevertheless. The potential to improve was endless.

I often think of the infinitely rising stairs. A landing is no longer frustrating. It’utes now an opportunity to take stock…a chance to see an ever-increasing number of landings below.

Always reflect on your achievements along the way. They’re a great reminder of methods far you’ve already arrive.

Until next week,

Jason McIntosh
Editor, Quant Trader

PS: Quant Trader is a fully algorithmic trading system. Its aim is to determine ASX stocks with the potential for large gains. The system’s underlying strategy is to run winners and cut losses. While easy to say, many traders find this particular difficult to do. Quant Trader can give you the discipline and confidence to turn a little profit into a BIG 1. To learn more, click here.

I’ve long said to expect a US interest rate hike this year. US Federal Reserve Chairperson, Janet Yellen continues to confirm my forecast with her comments. In her own words (but with my emphasis),

‘My own choice would be to be able proceed to tighten up in a prudent and gradual manner.

‘We should also be careful not to tighten too late because, if we do that, arguably we’re able to overshoot both of our goals and become faced with this situation where we would then need to tighten financial policy in a very sharp method in which could be disruptive.

‘If there is a unfavorable shock to the economy along with interest rates pinned at zero, we don’t have great scope to respond by loosening policy further, whereas with a positive shock obviously we can tighten monetary policy.‘

Indeed, US interest rates are going one way, and that’s up.

Why?

Because the Given has no other choice.

This isn’t regarding inflation.

And it isn’t about joblessness.

This is purely about the Fed using a job during the next economic crisis. Adjusting rates is the only policy tool that the Fed has available — the days of money printing are over.

This should be no surprise…

Why money printing is over forever

The Japanese government has been printing money for 20 years. And where’s that got them?

Absolutely no place.

The US money printing program didn’t achieve anything either. In fact, it merely postponed and amplified the next financial crisis. Which I may add, is in bonds and NOT stocks.

And the European Main Bank’s (ECB) money printing program?

Again, don’t expect anything miraculous presently there.

So, at the end of the day, money printing is only good for the bond holders. And it ensures that governments can issue even more bonds (we.e. borrow more money). Of course, this means that they can promise and spend more…

Now, while government spending sounds good in theory, it actually doesn’t do much for long term economic growth.

In reality, if you’re wondering, the majority of Foreign government spending goes in the direction of interest repayments on financial debt (19.8%), social security (Thirty-five.1%) and healthcare (16.1%). And even though most of this sounds good (as well as necessary), it doesn’t create sustainable long term jobs. At least not outside of government anyway!

And presently there you have it…

Money printing, which benefits government and the bond cases, does absolutely nothing for the actual economy. The experiment has sucked the economy dry. And central bank credibility has been hit hard for this.

This is why I say that the days of money printing are over.

And, because I’ve long said, you should expect US interest rates to rise higher. The first rate hike should come in either September or October. And I’m backing a second rise in December.

When interest rates start to increase, so will the US dollar. Which means that Aussie dollar will weaken. Yet this is still some time away.

In fact, before it happens, we’re likely to see a bounce in the euro. Which should affect your stock market investments.

If the euro rallies, what about the stock market?

Starting with Greece, here is why…

After all the controversy, the nation still remains in the Eurozone. This should observe confidence return into the Eurozone, at least temporarily.

Eurozone politicians will be in heated conversations into October 17 — the actual date when Athens’ bridging finance runs out — deciding on whether to maintain Greece in the Eurozone. In my view, otherwise at the mid-September Finance Ministers meeting, this will be the date when A holiday in greece will start packing it totes.

But, at the moment, the Eurozone remains. So that as Boris Schlossberg?of BK Asset Management?places it:

‘Almost everyone on Walls Street hates the euro right now and everybody is convinced that it’s going to parity [against the US dollar]. And it very well may. But not before I think it hurts quite a lot of complacent shorts.‘

Indeed, when the entire market hates something, typically you will see a rally. And this is exactly what I’m banking on…

And to shine it off, the US equities confirming season hasn’t kicked off to the greatest start. The technology sector overall has not impressed traders. For example, thanks to lower than expected Chinese iPhone sales, Apple Corporation. [NASDAW:AAPL] fell by nearly 8%. Additionally, it provided weaker profit assistance and a US dollar warning.

So, the data coming out of the US is not hot, to say the least. And a fragile earnings season may see investors punt on a later rate rise. This should strengthen the dinar. Furthermore, with Greece residing in the Eurozone, Europe has stabilised for the time being.

As such, expect a short phrase bounce in the euro. And, following the money trail, this should see capital shift in to bond market. Indeed, we’re already looking at a nice trend emerging in the bond market. Italian 10-year ties have had their best run because the summer of 2008

And with poor financial reporting results, this will see stocks trade reduced the meantime. Indeed, the correction which I called prior to the May high is not however over.

Take a look at this month-to-month chart of the Dow Johnson Industrial Index. It teaches you what we’re looking at for the short term.

Source: Freestockchart.com; Resource Speculator

The monthly chart will show you the big picture on the line. This year, we’ve seen the market smooth. And therefore, at the moment, it could move either way.

Yet, my analysis shows that it will move downwards. To confirm the ongoing correction, we need to visit a monthly close below 17,136 points. This is the January low. If this happens, it’s likely that we’ll after that be looking at the 16,Three hundred point region — the main target for the correction. This is proven by the lower black line.

Nevertheless, it’s still possible that I could be wrong. And the market could move higher if it removes the May high of Eighteen,351 points. If this happens, we’re taking a look at a two to three month move towards the 19,300 stage level. This is shown through the upper black line.

If you want more information on how to play these markets, check out Resource Speculator. I’ve been guiding readers through these choppy market conditions all year. See right here.

Regards,

Jason Stevenson,

Analyst, Resource Speculator

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